Biden could cancel $10,000 of your student loan debt: Here’s what we know so far

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President-elect Joe Biden’s student loan proposals have been a big subject of discussion following the 2020 election cycle — especially his promise to forgive $10,000 of federal student loan debt for borrowers as part of pandemic relief measures.

This promise, part of the Biden Emergency Action Plan to Save the Economy, would follow the expiration of current relief measures, which suspend payments and interest charges on federal student loans through the end of 2020. Like those measures, this one-time forgiveness would affect only borrowers with federal student loans.

Here’s what you need to know about his proposal and how it could impact your student loan debt.

Biden’s plan could alleviate debt for the majority of borrowers

Student loan debt continues to grow in the United States; the most recent statistics from MeasureOne report a total of almost $1.6 trillion in outstanding student loans, 92 percent of which are federally owned.

From free or reduced college tuition to revised income-driven repayment plans, Biden’s potential policies could radically change student loan borrowers’ financial picture.

In addition to these more systemic changes, Biden has also suggested more immediate relief. One measure proposed in Biden’s Emergency Action Plan would grant all federal student loan borrowers $10,000 or more in student loan forgiveness in order to promote economic recovery. Unlike the long-term forgiveness indicated in his other proposals, this student loan cancellation wouldn’t be conditional on service.

For some borrowers, $10,000 in forgiveness may seem like a small fraction. However, Forbes reports that over 60 percent of student loan borrowers carry a balance of $25,000 or less — meaning that $10,000 in forgiveness would effectively cancel most or all student loan debt for a majority of borrowers.

What’s more, a 2019 Bankrate survey found that 73 percent of millenials have delayed major life milestones due to their student loan debt. With $10,000 alleviated, those goals could be more attainable. To put it into perspective, $10,000 could pay for a car or serve as a down payment on a home.

Biden will likely avoid an executive order

How likely it is that this measure will pass depends in part on the details of the policy, says financial aid expert Mark Kantrowitz. Sens. Elizabeth Warren and Chuck Schumer have also put pressure on Biden to increase the forgiveness amount to $50,000 after inauguration day, so the details about how much forgiveness a student loan borrower could receive may change.

The likelihood of this passing with the immediacy that Biden has promised is largely dependent on who fills the remaining Senate seats. “Politically, because the composition of the Senate for 2021 is not yet certain, with two Georgia runoff races to come, it remains uncertain what might be given final legislative approval,” says Mark Hamrick, Washington Bureau Chief and senior economic analyst for Bankrate.

At the end of the day, legislation can be bundled any number of different ways, but the key is whether it passes both chambers and makes it to the president’s desk for a signature, says Hamrick.

There’s been no indication that Biden will choose to forgo the path through Congress and enact an executive order. During a press conference on Nov. 16, when asked if an executive action would be necessary to achieve student loan forgiveness and if forgiveness figured in his plan, he responded with, “It does figure in my plan. I’ve laid it out in detail. For example, the legislation passed by the Democratic House calls for immediate $10,000 forgiveness of student loans.”

He deems immediate relief necessary, saying, “It’s [student loan debt] holding people up. They’re in real trouble. They’re having to make choices between paying their student loan and paying rent, those kinds of decisions. It should be done immediately.”

While Biden hasn’t made any definitive statements, House Democrats have called for an executive order to be enacted. On Nov. 16, Sen. Warren tweeted, “Student loan debt is holding back a whole generation from buying homes, starting small businesses, and saving for retirement – all things we rely on to grow our economy. Executive action to #CancelStudentDebt would be a huge economic stimulus during and after this crisis.”

Where is the money coming from?

Biden’s plans to help alleviate the rising student loan debt may come with a big price tag. “Fundamentally, you have to get the money from somewhere,” says Kantrowitz. “So it’s either going to be taxing individuals, taxing businesses or increasing the deficit. Those are the three main sources.”

Ultimately, the question is whether the burden of at least a portion of the existing debt will be placed on the backs of taxpayers, says Hamrick. “That is a tricky question, and one which Biden and others will need to navigate if the matter is addressed.”

What’s next for student loans?

In addition to Biden’s Emergency Action Plan, he has also proposed measures to forgive $10,000 in student loan debt per year (up to five years) for borrowers who complete national or community service, double Pell Grant values and lower the obligations of people on income-driven repayment plans.

It’s important to remember that Biden’s Emergency Action Plan, as well as his more long-term student loan plans, are only proposals at this point. For now, federal borrowers can continue to take advantage of the federal forbearance period and be on the lookout for any further student loan relief.

Learn more:
Here’s how your student loans could change under a Biden presidency
What a Biden presidency means for your money, taxes and the economy
Trump’s executive orders extend student loan relief, with some exceptions

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