Now that Joe Biden has taken center stage as president-elect, all eyes are on what will happen in the early days of his presidency, including how he will handle student loan crisis.
the $ 1.5 trillion in student loans was a political hot potato for years before the Covid-19 crisis damaged the ability of millions of Americans to repay their debt after losing their jobs. Biden’s campaign included ambitious goals for student loans and made them less burdensome for middle-class Americans. In March, he expressed support for the cancellation of $ 10,000 in debt for struggling Americans during the pandemic.
But as we move closer to Biden’s early days as president, some experts believe student loan debt cancellation – even as part of Covid relief – may not be high on his list. decrees.
Will Joe Biden cancel student loans?
Biden is expected to use executive power to unravel many of President Donald Trump’s political moves that have taken place over the past four years, including the return of the Paris Climate Agreement, the establishment new ethical guidelines at the White House and the repeal of the travel ban for certain Muslims. majority countries, according to the Washington Post.
Providing additional economic assistance in response to the Covid-19 pandemic will also be a top priority for Biden when he takes office. But Betsy Mayotte, president and founder of The Institute of Student Loan Counselors, is skeptical of including student loan cancellation in this priority, although she supports it.
Currently, approximately 42 million Americans have federal student loan debt. Mayotte says that number is not high enough to convince her that canceling student loan debt will be an immediate priority for Biden.
“Right now, with Covid, we have other economic priorities that affect a lot more people. Health care, unemployment, small businesses – and we have a limited cash reserve, ”Mayotte says. She adds that in the short term, the benefits of the $ 10,000 rebate for each student borrower may be minimal compared to the economic impact of using that money elsewhere.
If Biden forgave $ 10,000 in federal student loan debt for 42 million Americans, the federal government would face a bill of $ 420 billion. With the current federal deficit Sitting at an all time high of $ 3 trillion, Biden could face opposition from Republicans in the House and Senate – and potentially even members of his own party.
Cancellation of Student Loan Debt Beyond Covid Relief
In the Democratic presidential primaries, progressive candidates like Bernie Sanders and Elizabeth Warren vowed to cancel all or most student debt. Biden made no such sweeping promises, and his plan focuses more on reforming student loans and lowering the cost of education in the United States, rather than relieving existing student debt.
But if Biden now forgives $ 10,000 in student loan debt for Covid-19 relief, would that be the first step towards widespread student debt cancellation across the board? Other Democratic leaders, including Senate Minority Leader Chuck Schumer (D-NY), believe it should be. Schumer recently told Anand Giridharadas that he believes Biden will be able to easily write off $ 50,000 in student loan debt per borrower and that he should do so within the first 100 days of his presidency.
“I have a proposal with Elizabeth Warren that the first $ 50,000 of debt be defeated, and we think Joe Biden can do it with the pen rather than with the legislation,” Schumer said.
In a cover letter According to Senator Warren’s proposal, the Legal Services Center at Harvard Law School says executive power could be used to write off federal student loan debt. The president is expected to order the secretary of the education ministry to use his existing powers to write off the debt.
“We conclude that such broad or categorical debt cancellation would be a legal and permissible exercise of the Secretary’s power under applicable law,” the letter read.
President Donald Trump has already written off student loan debt by executive order. In August 2019, he signed an executive order to cancel student loans for permanently disabled veterans, saving nearly 25,000 people an average of $ 30,000. The ordinance complements a law already in place to ensure that disabled veterans are forgiven of their debt, but only about half of them qualified before the decree due to meticulous eligibility requirements.
As the New York Times points out, the amount remitted under Trump’s executive order was “a small fraction of about $ 1.6 trillion of total student loan debt in the United States.”
Arguments Against Student Loan Debt Cancellation
Student loan debt is undoubtedly a huge problem.
Young Americans With Student Debt more difficulty reaching financial milestoneslike buying a house or investing for retirement. The student loan debt burden also disproportionately affects people of color who have higher borrowing levels but are less likely to be successful in paying off debt due to racial wealth and income disparities.
But even if they recognize that these problems exist, some experts believe that debt cancellation is not the solution.
“We need to provide fair, progressive relief that doesn’t cost hundreds of billions of dollars and allows the best parts of the current lending system to continue.” writes Adam Looney, Senior Research Fellow in Economic Studies at the Brookings Institute.
Looney offers to “fix” the system. This process would involve making income-based repayment universal and automatic for federal borrowers—something Biden proposed in his student loan reform plan. Biden’s plan would simplify the current reimbursement system by replacing multiple reimbursement plans with a single option. Under this new option, payments would be set at 5% of discretionary income and the remaining loan balance would be forgiven after 20 years of eligible payments. The remitted amount would not be considered taxable income.
“Our student loan programs have a lot of flaws and too many borrowers are struggling with loans they can’t pay,” Looney writes. “But it’s a call to fix the system, not throw it away.”
4 steps to take now to get a student loan
No one can say for sure what Biden might do in the early days of his presidency. But there is relief for student loan borrowers that they should consider taking advantage of:
The executive order extending the payment relief is still valid until December 31. Trump signed an executive order in August to extend the student loan relief granted by the CARES Act until the end of the year. This relief put all federal student loans (except Perkins loans and federal family education loans) on automatic waiver at a 0% interest rate. This means that eligible borrowers are not required to make payments during this period and their loan balances will not earn interest.
Take advantage of this rehabilitation period. An aspect of Student loan relief in the CARES law we don’t often hear about his generous help to borrowers who have defaulted on their federal loans.
Payments suspended during the federal student loan forbearance period are treated as regular loan rehabilitation payments, a program in which borrowers are required to make nine out of ten monthly payments to withdraw their loans from default. This means that even if the borrowers do not make payments during this period, the Department of Education will still count the period for withdrawing their loans from rehab.
Mayotte says borrowers with delinquent loans should explore this option now so they can receive the remaining two months “free” while working to get their loans back in good standing. Borrowers with past due federal student loans can register for loan pardon at any time, not just during the current forbearance period, by contacting their student loan manager directly.
Some private student loan lenders offer relief. Most forms of student loan relief often leave out borrowers with private student loans. Many private student loan companies have offered their own form of student loan repayment relief in response to Covid-19, although the benefits are not as generous as with federal student loans.
SoFi, for example, always announces the possibility for borrowers to request a loan deferral on its FAQ page. If you’re having trouble making repayments, contact your private lender and ask what repayment assistance options might be available.
Switch to an income-based repayment plan. If the federal student loan forbearance period is not renewed in 2021, borrowers can enroll in one of the income-based repayment plans to help ease the burden of their monthly payments. Depending on your situation, these repayments can be as low as $ 0 per month, but interest will continue to accrue and the length of your repayment terms may be longer than you originally expected.