Student loan debt is top of mind for many Americans, especially following President Joe Biden’s inauguration. Though little has been confirmed, Biden’s presidency could mean big changes for your student loans. His proposed policies include revising current income-driven repayment plans, increasing the value of Pell Grants, providing reduced or free tuition costs and increasing student loan forgiveness opportunities.
Here’s who should be paying attention to the proposed plans and what it could mean for your student loan debt.
Revised income-driven repayment plans
If you currently have or are expecting to have undergraduate student loan debt, the proposals about a new income-driven repayment plan made by the Biden team are likely to impact you, says Steve Muszynski, founder and CEO of Splash Financial. Here’s what Biden has in mind for the new income-driven repayment plan:
- Anyone who makes more than $25,000 would pay 5 percent of their discretionary income. After 20 years of making responsible payments, the loans would be 100 percent forgiven.
- Anyone who makes less than $25,000 would not owe any payments or interest on undergraduate federal student loans.
- Borrowers with existing or new student loan debt would be automatically enrolled in the income-based repayment plan, with the option to unenroll if they wished.
- Forgiven debt through the income-driven repayment plan wouldn’t be taxed.
- Only undergraduate students would qualify for the revised payment plan.
Currently, income-driven repayment plans are based on 10 to 20 percent of your discretionary income, with forgiveness after 20 to 25 years.
Free or reduced college tuition
Here’s what could happen to your college tuition with Biden in office:
- If you or your family makes less than $125,000 annually, tuition at a public university or college would be free for four years.
- If you attend a community college, your first two years would be tuition-free.
- This plan would be a federal-state partnership, with 75 percent of the cost going to the federal government. The states would contribute to the remaining balance.
Muszynski says that it’s “highly unlikely” that we’ll see mass student loan forgiveness under a Biden presidency. However, Biden has pushed for a few avenues for loan forgiveness:
- If you participate in national or community service, Biden has proposed a program that would elevate $10,000 from your student loan debt each year you participate for up to five years. If you work in a school, hold a government job or work in the nonprofit sector, this proposal would automatically be applied to your debt.
- Biden’s plans include allowing student loan borrowers to discharge their loan debt after declaring bankruptcy.
- Biden has proposed canceling $10,000 of student loan debt for all federal student loan borrowers as part of pandemic relief measures. This would be one-time forgiveness, but more borrowers would qualify than under the ongoing loan forgiveness measures. House Majority Leader Chuck Schumer and Sen. Elizabeth Warren have pushed back, proposing an increase to $50,000; however, so far Biden has held his stance.
Pell Grant increase
Muszynski suggests that Biden’s presidency will focus on the reduced cost of education, which would primarily be seen through an increase in government funding through Pell Grants. Biden’s Pell Grant proposals are aimed at reducing the amount of debt students leave school with.
- Biden plans on doubling the value of Pell Grants.
- He wants to allow Pell Grant participants, those with state aid and those with other types of aid to use the funds toward education costs beyond tuition.
The bottom line
Your student loan debt has the potential to look different now that Biden is president. However, keep in mind that these are just proposals — they are not guaranteed. For now, you can take advantage of the federal student loan forbearance period, which Biden has extended through Sept. 30, 2021.