How Joe Biden’s Student Loan Forgiveness Proposals Could Affect You

The cost of a bachelor's degree at four-year U.S. institutions has risen by over $40,000 since the 1990s. And that’s after accounting for inflation. As college costs skyrocket, so has America’s student debt. Today, the national total student debt exceeds $1.7 trillion.

Against this bleak landscape, President-elect Joe Biden is under a lot of pressure to take legislative action to provide relief for the millions of Americans who have student debt. During his election campaign, a few Biden student loan forgiveness proposals were unveiled as part of his overall higher education plan.

But as a bolder proposal continues to gain support from within and without Capitol Hill, Biden’s stance on student loan forgiveness is under a renewed spotlight. Here’s what you need to know.

Biden student loan forgiveness proposals

Joe Biden has indicated that his administration will support three main student loan forgiveness initiatives. Two of the proposals would modify existing policies while the third could qualify many more (if not all) student loan borrowers for some student debt cancellation.

Below we explain the details that are known so far about all three of the Biden student loan forgiveness proposals.

1. Forgiveness for borrowers on Income-Driven Repayment (IDR) plans

Biden’s student loan plan includes a major overhaul of the Income-Driven Repayment (IDR) program. Currently, borrowers on IDR plans make monthly payments that are based on 10% to 20% of their discretionary income and they can qualify for forgiveness in 20 to 25 years.

Under Biden’s plan, borrowers who earn less than $25,000 per year wouldn’t be required to make any payments whatsoever. And, importantly, interest wouldn’t accrue for borrowers whose incomes fall below this threshold.

For everyone else, payments will be based on 5% of their discretionary income over $25,000. This is projected to reduce monthly payments by more than 50% for many borrowers and the remaining balance would be forgiven after 20 years. Due to lower payments, borrowers could end up with much higher outstanding balances to be forgiven at the end of their repayment terms than under existing rules.

It should be noted, though, that those forgiveness balances could be viewed as taxable income under current tax laws. But Biden says that he plans to change the tax code so that IDR student loan forgiveness won’t be taxed.

Will graduate students qualify?

When you look closely at Biden’s higher education plan, you’ll notice that the income-driven program section specifically says that these changes are meant to benefit borrowers with “undergraduate federal student loans.”

So will graduate school borrowers continue to be offered the old IDR plans? Or will the new income-driven program apply to all federal student loan borrowers? Will graduate borrowers have any IDR options at all after the new program launches?

For now, we don’t have clear answers to any of these questions. It remains to be seen what income-driven plan choices will be available to graduate student loan borrowers under the Joe Biden student debt plan.

Will there be a marriage penalty?

Under certain existing IDR plans, married borrowers can exclude their spouse’s income for monthly payment calculations by filing taxes separately. For individuals who earn less than their spouse, this strategy can reduce their payments.

In President Trump’s 2021 fiscal budget, he proposed removing this option and always basing payments on joint income regardless of a married borrower’s filing status. This change could result in higher payments for some borrowers and would be, in essence, a marriage penalty.

President Biden hasn’t stated publicly whether he supports or opposes a marriage penalty on his new IDR plan. We’ll have to wait to see if the new program will use individual or joint incomes when calculating payments for married borrowers who file separately.

2. Forgiveness for public service workers

The Public Service Loan Forgiveness (PSLF) program launched in 2007 with the promise of offering full student loan forgiveness potential for teachers, social service workers, health professionals and more in as little as 10 years.

Unfortunately, 13 years later, very few public service workers have received student loan forgiveness from PSLF. Due to complicated rules and various loopholes, less than 3% of PSLF forgiveness applications have been approved.

The current PSLF rules also require borrowers to make 120 payments before receiving any forgiveness. So, for example, if a social worker decided to switch careers after five years, their several years of service would qualify them for zero PSLF forgiveness.

The new Biden student loan forgiveness plan for public service workers would provide $10,000 of forgiveness for each year of service for up to five years. This means that public servants could receive up to $50,000 of student loan forgiveness within five years. Qualifying individuals would be automatically enrolled in this new plan.

Will Public Service Loan Forgiveness (PSLF) be eliminated?

No, this new plan is meant to be an addition to PSLF rather than a replacement. But Biden also intends to help pass the What Can You Do For Your Country Act of 2019 which aims to fix many of the PSLF program’s key problems.

Supported by many politicians and labor associations, this legislation would extend eligibility for PSLF to all federal loans and repayment plans. Currently, FFEL loan borrowers are excluded from PSLF as are borrowers who are making payments on graduated or extended repayment plans.

3. Forgiveness for “all” student loan borrowers

Although some other Democratic presidential nominees were pushing for universal student loan forgiveness, Joe Biden signaled a more measured approach during his campaign. Rather than “forgiveness for all,” he preferred legislation that targeted those with the most financial need.

However, the financial hardships caused by the coronavirus pandemic motivated Biden to support emergency student loan relief. In March, he tweeted out that he recommended forgiving a “minimum of $10,000” per person of federal student loans.

However, Senate Democratic Leader Chuck Schumer (D-NY), Senator Elizabeth Warren (D-MA.) have introduced legislation that calls for up to $50,000 of forgiveness per borrower instead. Further, the legislation recommends that Biden use an executive order to cancel the debt.

Over 100 consumer and student advocacy organizations have announced support for Schumer and Warren’s resolution. President Biden hasn’t commented on the $50,000 forgiveness proposal or whether he would support using executive action to cancel any amount of student debt.

Why do some policymakers oppose higher student debt cancellation?

Some economists and policymakers say that forgiving large amounts of students disproportionately benefits Americans who are already financially advantaged. An analysis from the Committee for a Responsible Federal Budget (CRFB) showed that more than 70% of the unemployed don’t have a bachelor’s degree and 43% never attended college.

Forgiving large amounts of student debt won’t help these people. But it would help many workers who took out large amounts of student loans on their way to advanced degrees in high-earning professions. Brookings, a non-profit based in Washington D.C. that conducts in-depth public policy research, says that households in the top 40% of earners (annual incomes of $74,000+) account for nearly 60% of outstanding U.S. student debt.

For these reasons, many feel that limiting student loan cancellation to a certain dollar amount is the best way to help the most vulnerable. In 2019, the Center for American Progress said that forgiveness of up to $10,000 would eliminate all student loan debt for 36% of borrowers.

Will there be income limits?

One way to target federal relief towards those who need it the most is to impose income limits. For example, Joe Biden is calling for public colleges and universities to become tuition-free for all households with less than $125,000 of annual income.

It’s feasible that similar income limits could be recommended on future Biden student loan forgiveness proposals. But, as of yet, no public comments have been made regarding a loan forgiveness income ceiling.

The bottom line

There’s a lot we still don’t know about how President Biden will approach student loan forgiveness. Will he agree to use executive authority to cancel student debt? Or will he prefer for Congress to take the lead on passing new student loan legislation?

And, looking beyond student loan forgiveness proposals, will any new COVID-related relief (or extensions to existing programs) be announced? Ultimately, we’ll have to wait to see how Biden’s student loan plan develops over the coming weeks and months.

What do you think of the various Biden student loan forgiveness proposals? What legislation do you think may pass after the election? Let us know in the comments.