Editor’s Note: This article has been updated on April 10, 2020, to include modifications to the Biden student loan plan as a result of the Covid-19 pandemic.
After much anticipation, Joe Biden has finally released the full details of his student loan plan. Even though Biden doesn’t promise massive student loan forgiveness like Elizabeth Warren and Bernie Sanders, there is still plenty of good news for student loan borrowers.
Biden is calling for significantly lower monthly payments and earlier forgiveness under Income-Driven Repayment plans. He would expand Public Service Loan Forgiveness and make community college free.
Possibly the most exciting aspect of the Biden student loan plan is that it costs far less than the Warren and Sanders plans and is arguably more likely to become a reality.
Biden on Debt Cancellation, Student Loan Forgiveness, and Free College
Elizabeth Warren and Bernie Sanders have both released comprehensive plans to forgive most or all existing federal student debt. Warren and Sanders have also proposed free college for students pursuing a four-year degree.
Biden’s plan is not as generous.
For graduates, Biden isn’t proposing any blanket forgiveness for borrowers. For future students, Biden is supporting free community college for up to two years. However, he won’t be pushing for four years of college, despite previous support for free public college.
In short, Biden’s position on many student debt issues will be far less generous than the ones advocated by Warren and Sanders.
The good news is that Biden is still proposing some ideas that would help many current borrowers…
Biden Looks to Lower Student Loan Bills
Though Biden is promising to eliminate student loans if he is elected President, he is promising to lower student loan bills.
At present, borrowers on an income-driven repayment plan are expected to pay 10%, 15%, or 20% of their discretionary income towards their student loans. The percentage depends upon which income-driven repayment plan is selected.
A President Biden would lower the percentage of income payment down to 5%. Many borrowers would see their monthly student loan payment cut in half. Others would see an even bigger reduction.
Biden has also said that borrowers earning less than $25,000 per year would not be expected to make any payments. Additionally, these borrowers making less than $25,000 per year would have any interest accumulate on their debt. This means that unemployed borrowers would essentially be able to pause payments until they find new work.
Another significant change under the Biden plan would be the way student debt is forgiven under the Income-Driven repayment plans. Under the present rules, borrowers can have their loans forgiven after 20 or 25 years, and the forgiven debt is treated as taxable income. The taxation of this forgiven debt can result in a massive bill from the IRS. Biden would make all IDR borrowers eligible for forgiveness after 20 years and eliminate the tax bill.
Biden on Public Service Loan Forgiveness (PSLF)
Borrowers pursuing Public Service Loan Forgiveness (PSLF) currently face an all-or-nothing. No debt can be forgiven until all 120 PSLF payments have been certified.
Under the Biden plan, borrowers could receive up to $10,000 per year for up to five years of public service. Any remaining debt would be eligible to be discharged after ten years of public service.
Biden would also simplify the current complicated PSLF program so that borrowers working eligible jobs are automatically enrolled in the program.
How Biden Compares to Other Candidates
Even though we do not yet have the full details on Biden’s student loan plan, there is no doubt that it will not be as generous as the ones offered by Sanders and Warren.
However, one noteworthy aspect of his plan to lower monthly payments is that it can be accomplished via executive order. This means that he can lower borrower payments without needing any legislation to pass through Congress. This was the method that President Obama used to create the Revised Pay As You Earn (REPAYE) plan.
For Warren and Sanders to deliver on their promises, the legislation will have to get through Congress for them to sign. We think this could be a huge challenge.
Thus, the Biden plan isn’t the most generous, but it has a higher chance of becoming a reality.
April 2020 Update: A Proposal for Loan Forgiveness
To help families affected by the Coronavirus, Biden is now calling for full student loan forgiveness for borrowers who earn less than $125,000 per year who attended:
- undergraduate public colleges and universities
- private Historically Black Colleges and Universities (HBCUs), and;
- private underfunded Minority-Serving Institution (MSIs)
Biden also notes that there would be an appropriate gradual phase-out on the forgiveness so that borrowers who earn just over 125k do not miss out entirely.
For some borrowers, this would represent a massive improvement on the original Biden student loan plan. Those who attended most private schools or graduate schools will not be as fortunate.
The Best News for Borrowers
At this point, most of the leading Democratic candidates have released a plan to address the student loan crisis.
This development is significant for borrowers because it means that addressing student loan debt has become a bigger priority for the Democratic Party. During the Obama Administration, some steps were made to address the student loan issues faced by many Americans, such as the creation of new income-driven repayment plans and measures to keep for-profit schools in check. However, student debt in the United States has only gotten worse in subsequent years. If the Democratic Party makes addressing student loans a top concern, borrowers are more likely to get some help in the future.
The terms of the debate have made a significant shift for the better. The discussion is no longer about whether or not we should help student loan borrowers. Instead, the debate is about the best way of helping borrowers.