Election Night 2020 was an unprecedented one and perhaps would be more accurately described as “Election Week 2020.” In case you already forgot, the election night coverage started on Tuesday, November 3rd, but a winner was not declared until Saturday, November 7th as certain states took quite some time in counting all of their votes.
And that winner was former vice president Joe Biden, who will now be inaugurated as the 46th president of the United States on Wednesday, January 20th, 2021. When President-elect Biden takes the reigns from outgoing President Donald Trump on that day, he will become arguably the most powerful person in the world. With that power comes the ability to enact policies that will potentially change the course of the country and the everyday lives of hundreds of millions of Americans.
Healthcare, infrastructure, tax law, foreign relations, and climate change are the big hitters that immediately come to mind as policy theatres any president would like to leave their mark on. But one policy that is expected to undergo changes under the Biden Administration and will actually have an impact on most average Americans is our nation’s student loan debt policy.
Here’s what Joe Biden’s presidency could mean for your student loans…
Pandemic Forbearance Will Likely Be Extended
Under the CARES Act, one of the big changes for federal student loan borrowers was the pandemic forbearance that was enacted on all federal student loan debt. This has meant no federal student loan payments have been required up until December 31st, 2020, and all federal student loan interest rates have been frozen at 0% so no interest is accruing during that same time period.
LendEDU recently found that many student loan borrowers were saved by these CARES Act changes, especially as the pandemic recession keeps people out of work and their finances tight. So while technically this pandemic forbearance is supposed to end on December 31st, 2020, I believe the Biden Administration will extend the forbearance period for at least another six months once he’s inaugurated.
It’s also possible President Trump extends the forbearance period himself, but if he doesn’t Biden will likely just sign an executive order that reinstates pandemic forbearance. Helpful student loan policies curry favor with young voters, a voting bloc neither party wants to lose or alienate, which is why extending the useful pandemic forbearance period is a no-brainer.
President Biden May Forgive $10,000 Worth of Federal Student Loan Debt For Applicable Borrowers
This has probably been the most talked about, and likely the most effective, student loan debt policy that is being discussed by the incoming Biden Administration. As part of a larger COVID-19 relief package, all federal student loan borrowers will have $10,000 worth of their federal student loan debt completely forgiven. With roughly 15 million student loan borrowers having $10,000 or less worth of federal student loan debt, this would effectively mean complete student loan forgiveness for them.
LendEDU recently found the average student loan borrower from the Class of 2019 owed $29,076 upon leaving campus. Coupling staggering student loan debt figures with a recession that makes finding and holding a job difficult, you can begin to see the meaningful impact forgiving $10,000 in federal student debt would have on countless young Americans.
While some may see this policy as difficult to pass, just remember what I said earlier about both parties wanting to gain the support of young voters, who nearly all have student debt. Further, if this policy is tied into a larger pandemic relief package rather than just a student loan forgiveness bill, it will be easier to round up the more hesitant votes.
Possible Changes to Student Loan Debt Bankruptcy Laws
It’s important to remember that this $10,000 student loan forgiveness plan does not apply to private student loans, as those loans are not held by the government and not as easy to forgive. Biden is however discussing a potential plan to make it easier to discharge private student loan debt in bankruptcy, which right now is just about impossible to do. While nearly every other type of debt can be discharged through bankruptcy, it’s essentially not an option with student debt.
LendEDU once found 32% of all consumers that file for Chapter 7 bankruptcy also have student loan debt, which means even after they are cleared of most of their debts during a period of the financial hardship they will still have to repay student loan debt.
So if the Biden Administration is able to make changes to the bankruptcy laws, it would be a big help to those struggling with repayment that currently don’t have bankruptcy as an option.
Revising Income-Driven Repayment Plans
Another major student loan debt policy action the President-elect Biden is pondering would involve making changes to income-driven repayment plans. Currently, income-driven repayment plans enable federal borrowers to only have to make monthly debt payments that are a small percentage of their monthly income. It’s a big help for federal borrowers in tight financial situations that want to continue making payments to avoid student loan default.
And a LendEDU study recently found the federal student loan default rate to be at 9.70%, so it’s a common issue amongst borrowers in repayment. Biden’s potential changes to income-driven repayment plans would include only allowing undergraduate loans to qualify and not graduate student loans anymore. It’d also involve borrowers only paying 5% of their income, rather than between 10% and 20%.
Finally, monthly payments would be $0 if a borrower makes less than $25,000 and any remaining undergraduate balance after 20 years of repayment would be forgiven tax-free.
No one really knows for certain what student loan debt policy changes Joe Biden will enact while president as things tend to change when transitioning from a candidate to an elected official. Nonetheless, expect some sort of major action within Biden’s first 100 days as president.
Author Bio: In his role as Director of Communications at LendEDU, Mike uses data, usually from surveys and publicly-available resources, to identify emerging personal finance trends and tell unique stories. Mike’s work for LendEDU, featured in major outlets like The Wall Street Journal and The Washington Post, provides consumers with a personal finance measuring stick and can help them make informed finance decisions.
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