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Will Joe Biden cancel student loan debt?
There's no official word yet on what the next administration will do.
The short answer: We don’t know whether President-elect Joe Biden will issue a blanket cancelation on federal student loans during his administration. Some experts might say we’re closer than ever to canceling at least some student debt.
But we’re not there yet — and 2020 has brought a whirlwind of surprises. Hold off on making any major changes based on an assumption that student debt will be partially or fully erased.
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What Biden’s student debt plan actually says
Officially, Biden doesn’t have any policy proposals that would issue a blanket cancelation on all federal student debt. But Biden’s plan for education after high school could affect forgiveness programs that are already in place. It includes an expansion of the Public Service Loan Forgiveness Program (PSLF) and income-driven repayment forgiveness (IDR).
Under Biden’s proposal for PSLF, the Department of Education would forgive $10,000 per year of eligible public service work, up to five years. You can also count up to five years of prior eligible work toward PSLF. It would also expand the definition of what kind of work counts toward forgiveness to include adjunct professors.
Currently, you can have your entire loan balance forgiven after 10 years of public service work — as long as you’re enrolled in the right repayment program. This new program would offer less forgiveness for borrowers with more than $50,000 in debt, but simplifying it could ensure more Americans get approved. As it is today, PSLF is so complicated that less than 10% of applicants have been approved.
Biden’s plan would also simplify the IDR program. Borrowers enrolled in Biden’s new IDR program wouldn’t have to make any repayments if their annual income is $25,000 or lower — and the balance wouldn’t accrue interest. Everyone else would pay 5% of their discretionary income over $25,000 toward student loans.
All loans would be forgiven after 20 years, and borrowers wouldn’t have to pay income tax on forgiveness — as you do today. Currently, most IDR plans require repayments of at least 10% of your discretionary income and can take as long as 25 years to be forgiven.
While these two changes could be beneficial to borrowers struggling with student debt, Biden’s policies focus more on preventing student debt, rather than eliminating it.
Could Biden forgive student loans?
It’s possible that Biden could forgive student debt using an executive order. While Biden has stopped short of including student debt cancelation in his platform, he has shown support for it elsewhere.
During the campaign, Biden proposed offering $10,000 in federal student debt relief and supported a COVID-19 relief bill that would have offered student debt relief at that level. He also reiterated support for that bill in November, telling reporters that “it should be done immediately.”
A coalition of Democrats have proposed that Biden use an executive order to cancel $50,000 in federal student debt per borrower. Biden has not said that he supports debt forgiveness at such a level.
What to do today
Even with a new round of stimulus in the works, everyone with a student loan should prepare to start making repayments, which are set to restart in January 2021. Here are a few steps you might want to take:
Consider changing your repayment plan
If you’ve lost your job, enrolling in an IDR plan can reduce your repayments to $0 while you’re unemployed. This can help you avoid defaulting on your loan while your income is limited. But, unlike under Biden’s proposed IDR, interest continues to add up while you’re enrolled. And if you switch plans, any unpaid interest capitalizes — meaning it gets added to your loan balance.
If you’ve lost income, consider signing up for an extended repayment plan. This stretches your loan over a 25-year term and requires a lot less documentation than IDR. And you don’t have to worry about interest capitalization.
Know the risks before signing up for deferment
Deferment and forbearance offer a temporary pause on your student loan repayments without making changes to your repayment plan. But, like with IDR, interest capitalizes under most deferment programs. Once it ends, you’ll owe more money over a shorter period of time, meaning your monthly repayments will increase.
Hold off on refinancing — for now
Rates are at all-time lows right now. If you can qualify for a lower rate by refinancing your federal loans with with a private lender, you might be able to save on your monthly and total loan cost.
But while it’s unclear if Biden will forgive federal student loans, it’s still a possibility. Hold off on refinancing until we know for sure what the new administration will do.
Biden will likely make changes to the PSLF and IDR that could be beneficial to borrowers who are struggling with student debt. But there’s no official word yet on whether Biden will issue a blanket forgiveness on federal student debt when he enters office. In the meantime, read our guide to student loans to learn about the options available to you today.
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