Biden to review student loan forgiveness – here are 5 potential changes
President Joe Biden will consider the cancellation of the student loan.
Here’s what you need to know and what it means for your student loans.
Biden has asked the U.S. Department of Education to review student loan cancellation and repayment to determine what changes, if any, could improve student loan borrower outcomes. Later this month, the Education Department will hold public hearings to solicit public input that could shape the future of student loan cancellation. Here are 5 potential changes:
1. Get a lower student loan repayment
As a presidential candidate, Biden has said he wants to reduce student loan payments for student loan borrowers. Specifically, he wants to change income-based repayment plans so that student loan repayments are based on 5% of monthly discretionary income. Currently, income-based repayment plans such as REPAYE are based on 10% of your monthly discretionary income. If implemented, it could help student loan borrowers collectively save millions of dollars each month.
2. Faster cancellation of the student loan
The Department of Education may cancel your student loans more quickly. Under current income-based repayment plans, you can get a federal student loan canceled after 20 years for undergraduate student loans and 25 years for graduate student loans. President Donald Trump has proposed to shorten the cancellation period for student loans so that student loans can be canceled more quickly. Trump has proposed changing the student loan forgiveness so that undergraduate borrowers can get student loan forgiveness in 15 years (rather than 20 years) and graduate borrowers get student loan forgiveness in 30 years (rather than 25 years). years). In exchange for an earlier student loan forgiveness, student loan borrowers would pay 12.5% of discretionary income (up from 10% currently). It’s possible that Biden is adopting a similar policy that could help undergraduate student loan borrowers get student loan forgiveness sooner.
3. Simplify student loan repayment
If you’ve ever tried paying off student loans, it’s a lot easier than it looks. There are forms to fill out, student loan repayment options to navigate, and student loan services to manage. The process can be confusing to say the least when choosing options like income-tested repayment and student loan refinancing. Biden wants to simplify student loan repayments to reduce bureaucracy and complexity. For example, Biden could reduce the number of income-based repayment plans to a single plan. Biden also wants to make enrollment automatic for all income-based reimbursement plans. Student loan borrowers can always opt out, but for student loan borrowers who are struggling to repay their student loans, automatic enrollment could be a useful option without the bureaucracy.
4. Student loan waiver with fewer requirements
Biden could also relax the requirements for a student loan forgiveness. For example, consider the public service loan forgiveness program, which cancels student loans for borrowers who work for a qualified public service or non-profit employer. This program requires 120 monthly student loan payments and enrollment in an income-based repayment plan, among several other requirements. Biden, who recently removed the cancellation of student loans from his last budget, wants to cancel student loans for civil servants more quickly. That is why he proposed $ 10,000 per year for student loan cancellations for up to five years for a total of $ 50,000 for student loan cancellations. Another proposal would allow student loan cancellation for these student loan borrowers even if they do not meet any requirements. Democrats have also proposed changing the student loan forgiveness in 4 ways.
5. Tax Free Student Loan Exemption
Thanks to Senator Elizabeth Warren (D-MA) and Senator Bob Menendez (D-NJ), the latest stimulus package included a provision that makes any student loan cancellations tax-exempt until December 31, 2025. For example , this includes any large-scale student loan cancellations or student loan forgiveness through an income-based repayment plan. Importantly, given the expiration date, the cancellation of the tax-free student loan is only temporary. However, Congress could extend the tax-free student loan exemption or make it permanent. If Congress does not extend the tax-free student loan exemption, then student loan borrowers would have to pay taxes on the amount of student debt forgiven.
As you consider strategies for paying off student loans faster, here are some potential options for paying off student loans: