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.
Sign up for Kiplinger’s Free E-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!
-
How to Break Free From the 'One More Year' Trap and Actually RetireDespite having more than enough money to retire, some people simply cannot leave their jobs.
-
Stocks Swing Lower as Eli Lilly, Fortinet Spiral: Stock Market TodayThe main indexes finished well off their session highs after a disappointing batch of corporate earnings reports.
-
Five Things to Do if You're Forced Into Early Retirement (and How to Reset and Recover)Developing a solid retirement plan — before a layoff — can help you to adapt to unexpected changes in your timeline. Once the initial panic eases, you can confidently reimagine what's next.
-
Five Ways to Adapt Your Charitable Giving Strategy in a Changing World: An Expert GuideEconomic uncertainty, global events and increasing wealth are shaping the charitable landscape this year. Here are the philanthropic trends and some tips that could help affluent donors optimize their impact.
-
I'm an Estate Planning Attorney: These Are the Two Legal Documents Everyone Should HaveEvery adult should have a health care proxy and power of attorney — they save loved ones time, money and stress if a sudden illness or injury leaves you incapacitated.
-
I'm a Financial Professional: Here's My Investing Playbook for Political UncertaintyFor successful long-term investing in a politically charged environment, investors should focus on economic data, have a diversified portfolio and resist reacting to daily headlines.
-
The Truth About the Dark Side of Rooftop Solar PanelsRampant bankruptcies in the solar panel industry have left many consumers with systems that don't work and no way to get them fixed. Worse, they're being hounded to keep paying despite not receiving what they were promised. What can they do?
-
Six Big Beautiful Opportunities: Advisers' Guide to Tax and Client StrategiesHere are several ways financial professionals can help their clients maximize opportunities in the One Big Beautiful Bill Act, which extends key TCJA provisions, introduces increased deductions for people 65 and older and more.
-
Five Ways to Maintain Charitable Giving During Volatile Times: A Giver's GuideWhen the economic outlook is uncertain, charitable giving is even more important — and impactful. You can be strategic by using donor-advised funds, diversifying assets and prioritizing unrestricted gifts.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
