President Joe Biden will review student loan forgiveness.
Here’s what you need to know and what it means for your student loans.
Biden has asked the US Department of Education to review student loan forgiveness and student loan repayments to determine what changes, if any, could improve outcomes for student loan borrowers. Later this month, the Department of Education will hold public hearings to solicit comments from the public that could shape the future of student loan forgiveness. Here are 5 potential changes:
1. Get a lower student loan payment
As a presidential candidate, Biden said he wanted to lower student loan payments for student loan borrowers. Specifically, you want to change your income-based repayment plans so that your student loan payments are based on 5% of your discretionary monthly income. Currently, income-based payment plans, such as REPAYE, are based on 10% of your discretionary monthly income. If implemented, this could help student loan borrowers collectively save millions of dollars each month.
2. Faster student loan repayment
The Department of Education may be able to pay off your student loans faster. Under current income-based repayment plans, you can get a federal student loan repayment after 20 years for undergraduate student loans and 25 years for graduate student loans. President Donald Trump proposed shortening the time to get student loans canceled so that student loans could be paid off faster. Trump proposed changing student loan forgiveness so that college borrowers could get student loan forgiveness in 15 years (instead of 20 years) and graduate borrowers could get student loan forgiveness in 30 years (instead of 25 years). . In exchange for an earlier student loan forgiveness, student loan borrowers would pay 12.5% of discretionary income (compared to 10% today). Biden may adopt a similar policy that could help undergraduate student loan borrowers get student loan forgiveness sooner.
3. Simplify student loan repayments
If you’ve ever tried to pay off student loans, it’s harder than it sounds. There are forms to fill out, student loan payment options to browse, and student loan servicers to manage. The process can be confusing, to say the least, when choosing options like income-based repayment and student loan refinancing. Biden wants to simplify student loan repayments to reduce red tape and complexity. For example, Biden could reduce the number of income-based payment plans to a single plan. Biden also wants enrollment to be automatic for all income-based payment plans. Student loan borrowers can still choose not to participate, but for those student loan borrowers who are struggling to pay off student loans, automatic enrollment could be a useful option without bureaucracy.
4. Student loan forgiveness with fewer requirements
Biden could also relax the requirements for obtaining 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 nonprofit employer. This program requires 120 monthly student loan payments and enrollment in a payment plan determined by income, among several other requirements. Biden, who recently removed student loan cancellation from his latest budget, wants to cancel public servant student loans faster. That’s why he proposed $ 10,000 a year of student loan repayment for up to five years for a total of $ 50,000 of student loan repayment. Another proposal would provide student loan cancellation for these student loan borrowers. even if they don’t meet any requirement. Democrats have also proposed changing student loan forgiveness in 4 ways.
5. Forgiveness of tax-free student loans
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 cancellation tax-free through December 31, 2025. For example, this includes any large-scale student loan forgiveness or student loan forgiveness through an income-based repayment plan. Importantly, given the due date, forgiveness of tax-free student loans is only temporary. However, Congress could extend the tax-free student loan forgiveness or make it permanent. If Congress does not extend the tax-free student loan forgiveness, student loan borrowers will owe income tax on the amount of student loan debt that is canceled.
As you consider strategies to pay off student loans faster, here are some possible options for paying off student loans: