President Joe Biden (Photo by JIM WATSON/AFP via Getty Images)
Here are 5 major takeaways from a new plan to cancel student debt.
Here’s what you need to know — and what it means for your student loans.
Days before President Joe Biden announces his decision on student loan forgiveness, a major new plan for student loan forgiveness has rocked Capitol Hill. Three members of Congress, Reps. Virginia Foxx (R-NC), Elise Stefanik (R-NY) and Jim Banks (R-IN), introduced major legislation on student loan forgiveness and student loan repayment. Their new bill, which faces an uphill battle in a Democrat-controlled Congress, offers an alternative to Biden’s potential plan to cancel student loans and change the future of student loan debt. Here are 5 significant takeaways from the new plan on student loan forgiveness.
First, the plan includes no wide-scale student loan cancellation. More than 40 million student loan borrowers are waiting for an answer from Biden on student loan forgiveness. They’re hoping for $50,000 of student loan forgiveness but expecting $10,000 of student loan cancellation. Leaked documents from the U.S. Department of Education show who could qualify for wide-scale student loan forgiveness. However, Biden hasn’t decided if he will enact wide-scale student loan cancellation. Therefore, Biden could forgo broad student loan forgiveness. The bill reflects Republican sentiment about student loan forgiveness: it’s overwhelmingly expensive, represents unfair wealth redistribution and hurts Americans who didn’t attend college or don’t have student loans. Progressive members of Congress disagree, stating that wide-scale student loan forgiveness will stimulate the economy, reduce disparities and provide a financial lifeline to millions of borrowers. Democrats say student loan borrowers are suffering financially from the Covid-19 pandemic, and student loans have prevented them from getting married, starting a family, buying a home and saving for retirement.
Second, the new bill would end student loan forgiveness for public servants. Specifically, the bill would end the Public Service Loan Forgiveness program starting on July 1, 2023. Student loan borrowers who are pursuing public service loan forgiveness before that date presumably would remain eligible to get their student loans canceled. Like wide-scale student loan forgiveness, some Republicans believe eliminating public service loan forgiveness would save the federal government billions. Democrats want to continue the federal program to help police officers, firefighters, service members, first responders, doctors, nurses and other public servants to get student loan relief. Since becoming president, Biden has canceled more than $25 billion of student loans, including $8 billion of student loans for public servants. Congress created the Public Service Loan Forgiveness program in 2007 with bipartisan support.
Third, the bill would create a new, single income-driven repayment plan similar to Income-Based Repayment (IBR). This new plan would replace the existing income-driven repayment plans: IBR, Pay As You Earn (PAYE), Revised Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR). A single student loan repayment plan would reduce bureaucracy and confusion for student loan borrowers. Biden has made several changes to simplify student loan forgiveness. The president also could propose a new income-driven repayment plan, but Biden recently delayed his new plan for student loans. The new bill also would eliminate capitalization of student loan interest, which would save money for student loan borrowers. When student loan interest is capitalized, accrued student loan interest is added to your student loan balance.
Fourth, in a big win for student loan borrowers, the bill would limit student loan interest to 10 years. Specifically, student loan borrowers who are enrolled in an income-driven repayment plan would only have to pay their original student loan balance plus 10 years of student loan interest. Currently, student loan borrowers with an income-driven repayment plan get student loan forgiveness after 20 years for college student loans. This could save individual student loan borrowers up to thousands of dollars in student loan payments.
Fifth, the new legislation would end the student loan payment pause. The student loan moratorium will end on August 31, 2022. However, this legislation would formally end the student loan moratorium if Biden extends student loan relief beyond August. Federal student loan payments have been paused for more than 40 million student loan borrowers since March 2020. Congress passed the Cares Act, the $2 trillion stimulus package, with historic student loan relief, including no mandatory federal student loan payments and a 0% interest rate on student loans. Democrats have urged the president to continue the student loan payment pause, citing economic uncertainty and the Covid-19 pandemic. Republicans say Biden has canceled $400 billion of student loans and the ongoing student loan payment pause has cost the federal government $150 billion. Are you prepared for the restart of student loan payments? Understand all your options for student loan repayment. Here are some of the best ways to pay off student loans and save money:
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