Life for student loan borrowers could be dramatically different now that Joe Biden has been elected President. Predicting what might change and what will stay the same requires a bit of guesswork, but other predictions come with a high degree of confidence.
As a candidate, Joe Biden released a detailed plan for higher education. Unfortunately, the promises of a candidate and the actions of an elected official can be quite different. The political landscape, support among Democrats and Republicans, and potential cost will impact the odds of various proposals becoming law.
Covid-19 Student Loan Payment and Interest Suspensions
It would be a massive shock for the Biden Administration to start charging interest and require payments during the Coronavirus pandemic.
Borrowers should expect that the payment and interest freeze will continue.
Additionally, it is worth noting that Biden can continue the payment break without any help from Congress. President Trump has previously extended the payment suspension via executive order.
Possible Confusion in January 2021:The big variable is the fact that the current student loan relief ends on December 31st, 2020. The Biden Presidency won’t start until the end of January in 2021. Biden could retroactively extend the relief once he takes office, but January 2021 could be a confusing time for borrowers and student loan servicers. Donald Trump has previously extended the interest freeze, but there is no guarantee that he will do so again.
President Biden’s New Student Loan Repayment Plan
Candidate Biden has proposed the creation of a new repayment plan.
This new repayment plan would work similarly to the existing income-driven repayment plans. The critical difference would be that borrowers would only pay 5% of their discretionary income toward their student loans. Current plans require borrowers to pay 10%, 15%, or 20% depending upon the plan.
Under the new Biden Repayment Plan, borrowers would earn student loan forgiveness after 20 years worth of payments.
History Lesson: During his term, President Obama created a new repayment plan with an executive action. This is significant because it means that Biden could create his repayment plan without getting help from Congress.
Odds of Success: The chances of getting the new repayment now that Biden has been elected are quite high. The rulemaking process could take a year, but almost no roadblocks are preventing it from happening.
Massive Debt Forgiveness or Loan Cancellations
Within the Democratic party, there is growing support to cancel large amounts or all federal student debt.
Don’t expect President Joe Biden to cancel a sizable portion of all federal student loans.
If Biden were inclined to support this policy, he would have said so when Elizabeth Warren and Bernie Sanders released their popular plans. Massive debt forgiveness is the sort of campaign promise popular with Democratic primary voters but challenging to deliver.
Prediction: Student loan forgiveness for all is unlikely to get serious discussion until the next time there is a contested Democratic presidential primary. Biden’s more moderate positions take this option off the table. The most forgiveness that borrowers can realistically hope for would be as part of a Covid-19 relief package.
Tiny Fixes that Could Make a Big Difference
Several proposals are floating around that could make things dramatically better for smaller groups of borrowers.
Currently, the federal interest and payment freeze applies only to “federally held” student loans. The House of Representatives, now controlled by the Democrats, has passed a bill that would extend the Covid-19 relief to all federal loan borrowers. Most student loan borrowers wouldn’t be affected by this change, but some FFEL and Perkins loan holders would get a huge break.
One of the current complications with Public Service Loan Forgiveness is that some borrowers need to go through Federal Direct Consolidation while others should avoid it. Borrowers that consolidate too late can lose their progress towards PSLF. New legislation could allow borrowers to keep their progress towards PSLF even if they go through federal direct consolidation. Here again, a minor change to PSLF would not impact most borrowers, but it could be a step towards cleaning up the current high rejection rate on PSLF applications.
Finally, the current Secretary of Education, Betsy DeVos, has created many policies that make things difficult for borrowers. The results have led to poor servicing and lawsuits from borrowers. In one notable example, a federal judge held DeVos in contempt of court for continuing to bill borrowers for loans that should have been discharged due to fraud by the college. A new Secretary of Education could adopt positions less hostile to student loan borrowers.
Prediction: The Biden Presidency won’t fix all of the issues facing student loan borrowers who have been misled by colleges or loan servicers, nor will it remove all of the red tape that makes student loan repayment complicated. However, borrowers can expect that the Biden administration will address the most egregious issues.
Predicting Joe Biden’s First Student Loan Moves as President
In a typical election year, the $1.6 trillion student loan issue might get more immediate attention from a newly elected President.
However, due to a pending health crisis, expect the first student loan help to come in the form of Covid-19 relief.
New repayment plans and fixing loan forgiveness programs are likely to be addressed at a later time.