President-elect Joe Biden drew a lot of attention at the start of the COVID-19 pandemic when he called on Congress to forgo a minimum of $ 10,000 in federal student loans per borrower as part of a coronavirus relief bill. The bill was proposed by four senators, including Senate Minority Leader Chuck Schumer and Senator Elizabeth Warren. He called for the cancellation of monthly student loan payments during the duration of the crisis and for the US Department of Education to make payments on behalf of federal student loan borrowers, with a guaranteed repayment of $ 10,000.
While that plan never materialized – instead, federal student loans accrued no interest during that time, and there was a freeze on payments and collections – Biden has since vowed to cancel. immediately a minimum of $ 10,000 in federal student loan debt as part of its COVID-19 response. And with Georgia Senate runoffs now decided and Democrats taking control of both houses of Congress, the path to student loan cancellation seems clearer than before. So what else can borrowers expect after Biden takes office?
The $ 10,000 cancellation of federal student debt will likely be considered first, as the current relief program is scheduled to expire on Jan. 31. But in addition to COVID-19 relief, Biden signaled his support for the complete cancellation of student loans after a period of time, depending on the type of loan and the borrower’s income and payment history. During the campaign, he pledged to write off all federal debts related to undergraduate tuition fees incurred at two- and four-year public colleges or historically black private colleges and universities and institutions serving minorities. for debt holders earning up to $ 125,000 per year. (Note that this excludes loans for things like room and board.)
Additionally, under Biden’s plan, people earning $ 25,000 or less would not be required to make payments on their federal undergraduate student loans, and those loans would not earn interest. Anyone above that threshold would pay five percent of their discretionary income – that’s the income left over after taxes and essential expenses, like housing and food – for their loans. After 20 years, the rest of the loans for people who “made payments responsibly” would be canceled. This means that those whose income never exceeded $ 25,000 would have their loans canceled without ever having to make any payments. Biden also wants to change the tax code so that debt written off through his plan is not taxed.
This is Biden’s plan for individuals. For civil servants, such as government employees, it would extend relief even further. Although there is already a civil service loan forgiveness program, Biden says it is “broken.” In 2019, a government monitoring report found that 99% of applicants to the program were turned down. In 2020, another report found that borrowers who had been certified as eligible for the program were subsequently reviewed and rejected. Biden plans to create a new program that would provide $ 10,000 in undergraduate or graduate student debt relief for each year of national or community service, up to five years.
So what does all of this mean for borrowers with outstanding loans? Unfortunately, nothing yet. The Democratic Party holds a slim majority in the Senate, and although some have suggested Biden could bypass Congress by working with the Department of Education to suspend student loans, he has not said he will go down that route. However, it’s clear that canceling the student loan is a priority for Biden. “They are in real trouble,” he said at a post-election press conference, referring to student loan borrowers. “They have to make choices between paying off their student loan and paying rent, those kinds of decisions. It should be done immediately.”