When the CARES Act was passed in March, payments were suspended and the interest rate was temporarily set to 0% for federal student loans. The student loan relief is set to expire on Jan. 31, 2021. Will President-elect Joe Biden extend the temporary relief? No one knows.
While there is uncertainty about what will happen after Jan. 20, 2021, we have an idea of the long-term changes that might be coming to student loans when Biden takes office.
These proposals will have to be approved by Congress to become law, but here is a summary of what Biden has proposed so far with regards to student loans.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Cancellation of up to $10,000 per borrower
On March 22, 2020, Biden tweeted that he would cancel up to $10,000 for each borrower of federal student loans. This cancellation was originally proposed by the Democrats to be included in the CARES Act. It did not make it into the act, but it is possible that the Biden administration will include the $10,000 cancellation as part of a future stimulus package.
Monthly payment capped at 5% of your income
The Biden Plan for Education Beyond High School includes changes to the current repayment and forgiveness programs for federal loans. Currently, borrowers in Income-Driven Repayment (IDR) plans are required to pay 10%-20% of their income over the federal poverty line toward their student loans. The Biden Plan would limit that to 5% of income over $25,000. Also, there would be no monthly payments required and no interest accrual for individuals making less than $25,000 a year.
Automatic enrollment in IDR and forgiveness
New and existing federal student loans will be automatically enrolled in the IDR plan. Borrowers have the choice to opt-out. This is a major change to the current complex system. Under the current federal system, borrowers pick and enroll in one of many available plans, which can be confusing. According to the proposed plan, the remaining balance of the loan will also be forgiven automatically after 20 years of payments are made. There would be no income tax on the forgiven amount in this new long-term forgiveness program.
Public Service Loan Forgiveness
Biden’s proposal suggests putting a cap on the amount of forgiveness a borrower can get in the Public Service Loan Forgiveness (PSLF) program. Again, the enrollment in the PSLF is automatic for “individuals working in schools, government, and other non-profit settings.” However, the amount of PSLF forgiveness is $10,000 of undergraduate or graduate debt for every year of qualifying service, for up to five years, which means that the maximum amount of forgiveness would be $50,000, in contrast to the unlimited amount under the current rules. Although this may be bad news for borrowers who were hoping to get more than $50,000 forgiven tax-free, the proposed plan allows up to five years of prior national or community service to count towards PSLF.
Private Student Loan Discharge
It has generally been very difficult to get student loans discharged in bankruptcy.
Biden has promised to enact legislation from the Obama-Biden administration to permit the discharge of private student loans in bankruptcy.
Tuition-free colleges and universities
The Biden Plan also includes ideas for reducing the need for some students to take out student loans in the first place. The plan proposes making public colleges and universities tuition-free for all families with incomes below $125,000. These tuition-free colleges and universities would include community colleges and state colleges and no private colleges, except for private Historically Black Colleges and Universities (HBCU) or Minority-Serving Institutions (MSI). Only tuition and related expenses would be free. Students and their families would still pay for other expenses, such as room and board.
Again, these plans will not become law unless approved by Congress. But it’s good to keep track of the changes in the law that may affect your student loans and repayment strategy. If you need help coming up with a strategy, contact a professional with student loan expertise for help!
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five QuestionsWho said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for RetirementSaving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial ExpertHealth care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial ProfessionalWinning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your WalletInterest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your InvestmentsDon't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
