Biden Student Loan Forgiveness Changes And Proposals

College graduates in the US owe an average of nearly $30,000 in student debt. Although payments on federal student loans have been paused during the pandemic, they will eventually resume.

Once student loan payments unpause, they will once again become one of the largest items on most family budgets. Thus a policy to reduce or cancel student debt could help many individuals and families tremendously.

During his campaign, President Joe Biden outlined the changes that he would make to current student loan forgiveness programs as well as new proposals he plans to introduce. What are these plans and how could they affect you? Let’s take a look at the Biden student loan forgiveness proposals that have been made so far.

There are five main Biden student loan forgiveness proposals. Most were laid out as part of a broader higher education plan. Here's what you need to know about each.

Since the pandemic began in March, Biden has repeatedly expressed support for providing $10,000 of forgiveness to all student loan borrowers. For people who owe $10,000 or less in student loans (which is over a third of borrowers) this could mean total cancellation of debt. 

Unlike other Biden loan forgiveness proposals, eligibility for this debt cancellation would not be based on your type of employment or repayment plan. But it's possible that if you earn more than $125,000 per year, you could be excluded from this forgiveness program.

In early December, Senator Chuck Schumer indicated that President-Elect Biden was “considering” a senate resolution introduced by Senator Elizabeth Warren and himself. It calls for Biden to cancel up to $50,000 in student loan debt by executive action.

Over 100 community consumer and student advocacy organizations have publicly supported the resolution. However, it differs from the more conservative approach of limiting forgiveness to $10,000 that Biden has supported thus far. 

Our research found that 73% of Americans supported a plan to forgive up to $10,000 in student loan debt.

The Public Service Loan Forgiveness (PSLF) program is advertised as being able to forgive your student debt in full if you work for a qualifying public service employer for 10 years. That sounds great on paper. But, in reality, few people have received forgiveness from the program. 

As of September 2020, only 5,069 out of 179,371 applications for PSLF had been approved. That means a whopping 174,302 applications have been denied. It also means that the dismal approval rate is less than 3%.

Biden proposes to create a new, simpler program while also reworking PSLF. The new program for public service workers would offer up to $10,000 of forgiveness per year for up to five years. So within 5 years, qualifying borrowers could have $50,000 of their student loans forgiven.

Borrowers with more than $50,000 of student loans could still pursue PSLF. But to improve the approval, Biden has pledged to help pass the What Can You Do For Your Country Act of 2019. This bill would close many of the loopholes that have caused such a large percentage of PSLF applications to be denied to date.

Joe Biden has also proposed to repeal 11 USC 523(a)(8). This section of the U.S. Bankruptcy Code provides an exception so that federal and private student loan debt cannot be discharged in the same manner as other debts.

In order to have your student loans discharged in a bankruptcy filing, you need to show that you have extenuating circumstances and that paying off your student loans would cause "undue hardship" on you and your family.

This new rule has made it very difficult for borrowers to get their student loans discharged in bankruptcy court. The Obama-Biden administration tried to repeal this section of the bankruptcy law in 2015. Now Biden is promising to finish the job by enacting this legislation during his own presidential term.

Canceling even $10,000 of student loan debt would mean financial relief for a lot of American families. But opponents of President-elect Biden’s proposals have said that this kind of sweeping debt cancellation undermines the efforts of borrowers who have worked hard to pay off their loans.

Another criticism is that such a legislation would largely benefit people who are already well-off. The thought process here is that people from financially stable backgrounds are more likely to have attended the best schools (with the highest tuition rates) and completed their degrees.

According to Census.gov, high school was the highest level of education attainment in 2019 for 28.1% of people age 25 and older. And only 22.5% had finished four years of college. On average, people with bachelors degrees out-earn those without them. Also, borrowers with the largest debt totals are often those who pursued advanced degrees in high-paying fields.

For these reasons, critics fear that forgiving large student loan balances would only serve to widen the American income and wealth gaps. This is why many economists and politicians have advised Biden to reject the calls to increase the forgiveness limit to $50,000.

College tuition is not getting any cheaper. Between 1985 and 2017, average college tuition rates went up by about five times. That massive increase is nearly double the rate of inflation.

It's easy to see why so many people are struggling to manage their student debt and are closely following Biden student loan forgiveness proposals. However, barring changes made by executive action, it could still take some time for new student loan legislation to pass Congress.

In the meantime, federal borrowers may be able to find immediate student loan relief through IDR plans or applying for forbearance or deferment. And private loan borrowers may be able to lower their student loan payments by refinancing to a lower interest rate.

What are your thoughts on the Biden student loan forgiveness proposals? Let us know in the comments!