Student loans represent the second largest portion of household debt after mortgages and credit card debt. Forty-two million Americans today carry student loan debt.
What does Biden student loan forgiveness look like in the context of his campaign promises? Since his campaign and election, the Biden administration and the Department of Education have made small moves toward reform. In this article, we’ll discuss the current state of student loan forgiveness, including the types of student loan forgiveness currently available to current students and graduates, new student loan forgiveness measures and important changes affecting student loan forgiveness.
As a student loan borrower, you may want to know your exact options moving forward and what might come in the future from a Student Loan Forgiveness Bill 2021 — or, since that seems unlikely to occur in 2021 — the possibility for one for the future.
Studying these moves can help student loan borrowers peer into what could become reality moving forward, but many experts warn that borrowers shouldn’t rely on complete student loan forgiveness. Read more about repaying starting in February 2022, when the student loan pause on paybacks will cease and also how to invest for the future.
The Current State of Student Loan Forgiveness
First, let’s define student loan forgiveness. Student loan forgiveness means that as a borrower, you do not have to repay some or all of your loan — it becomes cancelled, or discharged.
Recent action on student loans includes an extension on the pause to repay student loans until January 31, 2022, which was set to expire in October. Borrowers should be prepared to begin repaying starting in February 2022.
In addition, the Department of Education revealed that it would reverse certain policies from the Trump administration, which were designed to hinder the ability of states to challenge student loan servicers’ illegal activity.
The Department of Education has also plans to consider changes in regulations and change federal student loan programs, including loan forgiveness and discharge programs.
What President Biden Has Promised
During his campaign, President Joe Biden promised to tackle Americans’ $1.7 trillion student loan debt and reform key student loan programs. More specifically, in a speech he gave last November, Biden promised to cancel $10,000 of student loan debt per person.
He also proposed capping payments at 5% of income for income-driven repayment plans, not taxing the forgiven loan amount and automatically enrolling every federal student loan borrower in an income-driven repayment plan.
In his campaign, he also proposed a new student loan forgiveness program for borrowers who provide a public service — up to $50,000 could be forgiven and $10,000 of debt would be cancelled for each year of eligible service, for up to five years total.
Biden has yet to capitalize on any of these promises, and many high-ranking congressional officials have even asked the question, “Can a president forgive student loans?”
The Speaker of the House, Nancy Pelosi, doesn’t think so. She has said that the President cannot cancel student loans without an Act of Congress. Pelosi has explicitly stated that the president can delay or postpone student loans and student loan payments but cannot forgive student loans.
New Student Loan Forgiveness Measures
President Biden has cancelled $1 billion of student loans for 72,000 student loan borrowers who fall into the borrower defense to repayment rule category, in which students are victims of fraudulent, misleading or illegal acts by academic institutions, or to put it simply, in cases of fraud or school closure. He cancelled another $1.3 billion of student loans for 41,000 borrowers who have a total and permanent disability. It’s important to know, however, that these laws already existed before Biden cancelled them for these particular student loan borrowers.
Important Changes Affecting Student Loans
First and foremost, the most important changes with regard to student loans is the student loan pause until January 31, 2022.
In addition, Biden’s 2022 budget proposal outlines some relief for current and future students and borrowers, but the proposed budget has to go through both houses of Congress to become law.
However, here’s the scope of what Biden has proposed to the Senate for fiscal year 2022 discretionary funding. The document requests higher education increases in the following programs and in the following specific amounts for each program:
The U.S. Department of Education
The Biden budget proposal would increase Department of Education funding by $30 billion. The president’s 2022 budget calls for $102.8 billion to fund these programs.
Free Community College and Other Institutional Affordability
Biden’s American Families Plan outlines the use of $123 billion over the course of 10 years to provide two years of tuition-free community college for individuals. Biden’s plan claims that the federal government would pay for 75% of the program.
College would also become more affordable for students at private colleges and universities, as well as at public Historically Black Colleges and Universities (HBCUs), tribal colleges and universities and any other Minority Serving Institutions (MSIs). Specifically, the White House budget includes an additional $600 million for these minority-serving institutions, including HBCUs, community colleges, tribal colleges and other similar institutions.
Biden’s plan outlines adding $3 billion in funding for Pell Grants for undergraduate students who demonstrate significant financial need. The maximum grant award would increase $400 from the current amount, which is currently $6,495 for the 2021 to 2022 academic year. Grant eligibility would also expand to Dreamers, or undocumented students brought to live in the U.S. at a young age.
Programs under the TRiO umbrella include Talent Search, Upward Bound, Upward Bound Math/Science, Veterans’ Upward Bound, Student Support Services, Educational Opportunity Centers, the Ronald E. McNair Post-Baccalaureate Achievement Program, and Training Grants. All programs would include an additional $200 million.
Violence Against Women Act
A total of $1 billion would support the Violence Against Women Act and programs, which supports women at HBCUs, tribal and Hispanic-serving institutions. The program strengthens responses at the local, state, tribal and federal levels to combat domestic violence, dating violence, sexual assault, stalking and more.
Science and Technology
The National Science Foundation’s budget would increase 20% to nearly $10.2 billion. The National Science Foundation’s education and workforce training programs would increase 16% and graduate research fellowships would jump from 2,000 to 2,500. The agency would also offer 20% more awards to individual scientists, with average grant size rising by nearly 15%.
President Biden’s budget would also offer the Office of STEM Engagement a $20 million increase to expand initiatives to attract and keep minority students, or “underserved and underrepresented students” in science, technology, engineering, and math (STEM) fields. HBCUs would also see upgraded laboratories and developments in information technology infrastructure.
Revised Income-Driven Repayment and Public Service Loan Forgiveness
Biden didn’t specify in the budget proposal how income-driven repayment and public service loan forgiveness would work.
Take a look at the major headlines from the past year related to student loan forgiveness and forbearance:
|Date||News Related to Student Loan Forgiveness|
|January 20, 2021||Biden extended student loan forbearance to September 30, which paused federal student loan payments and collection, and kept interest rates at 0%.|
|February 4, 2021||White House press secretary reaffirmed Biden’s support of canceling $10,000 of federal student loan debt per individual.|
|March 11, 2021||Biden signed the American Rescue Plan, which offers $39 billion for higher education institutions. It also makes student loan debt forgiveness tax-free until 2025.|
|March 18, 2021||The Department of Education cancels about $1 billion in student loan debt for 72,000 people through the borrower defense to repayment program, making it easier to win for fraud claims.|
|March 29, 2021||Over 40,000 borrowers with total and permanent disabilities qualified for $1.3 billion in student loan forgiveness.|
|July 28, 2021||Speaker of the House Nancy Pelosi says Joe Biden can’t unilaterally cancel student loans without an Act of Congress.|
|April 1, 2021||President Biden asks Education Secretary Miguel Cardona to prepare a memo on the president’s legal authority to cancel up to $50,000 of student debt per individual.|
|April 9, 2021||The Biden administration outlines the request for fiscal year (FY) 2022 discretionary funding, including several higher education budget requests.|
|April 28, 2021||The Biden administration seeks legislative approval for a $1.8 trillion American Families Plan, which outlines universal preschool, free community college and other initiatives that will benefit low-income and middle-class families.|
|August 9, 2021||The Biden administration extends the student loan pause until January 31, 2021.|
|September 21, 2021||Senate Majority Leader Chuck Schumer renewed his call for President Joe Biden to cancel student loan debt through executive action.|
Available Student Loan Forgiveness Options
Let’s take a closer look at federal loan-specific student loan forgiveness programs. We’ll explain the eligibility for each type of loan forgiveness, how each type of forgiveness currently functions and who can take advantage of that particular program.
Public Service Loan Forgiveness
You can cancel your federal student loan debt after you make a specified number of monthly payments through Public Service Loan Forgiveness (PSLF). You can only get federal direct student loans forgiven through PSLF: Direct Subsidized Loans, Direct Unsubsidized Loans, Parent PLUS Loans, Graduate PLUS Loans and Direct Consolidation Loans.
You must work full-time at a public service job to become eligible for PSLF. Once you make 10 years’ worth of payments (120 payments), your loans will be forgiven. The standard repayment only goes up to 10 years, so in order to capitalize on this, you’d have to switch to an income-driven repayment plan.
An income-driven repayment plan means your student loan payments are adjusted based on your income. Your monthly student loan payment will change based on your income and the size of your family. The program forgives outstanding student loan balances after a specific number of years:
- Revised pay-as-you-earn (REPAYE) repayment plan: Loan remainder forgiven after 20 years (undergraduate loans) and 25 years (graduate loans)
- Pay-as-you-earn repayment (PAYE) repayment plan: Loan remainder forgiven after 20 years
- Income-based repayment (IBR) plan: Loan remainder forgiven after 25 years
- Income-contingent repayment (ICR) plan: Loan remainder forgiven after 25 years
The federal student aid website says that the following types of loans are eligible for each program:
- REPAYE and PAYE: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans for students and Direct Consolidation Loans (check on the details with your loan servicer).
- IBR: Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans Loans, Direct or FFEL PLUS Loans for students, Direct or FFEL Consolidation Loans check on the details with your loan servicer).
- ICR: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans for students and Direct Consolidation Loans.
Check with your loan servicer for the details about these types of plans.
Teacher Loan Forgiveness
Teachers can get a portion of student loan debt forgiven through the Teacher Loan Forgiveness Program. Teachers must stay employed at a school that serves low-income students as long as they teach for five consecutive years and have Direct Subsidized, Direct Unsubsidized Loans, Direct Subsidized or Direct Unsubsidized Federal Loans. The amount forgiven depends on the subject taught — high-need fields such as math qualify.
Closed School Discharge
A closed school discharge refers to a college or university that closed or while a student is enrolled in a particular institution. Students must have Direct Loans, FFEL Program Loans or Perkins Loans to qualify. In addition, students must have been enrolled when the school closed, on an approved leave of absence or be 120 days or 180 days removed from school closure, depending on when funds were disbursed.
You’ll get an application in the mail after the institution closes. You can contact your loan servicer for more information.
Perkins Loan Cancellation and Discharge
Based on employment or volunteer service, Perkins Loan Cancellation and Discharge can occur. Students must meet the requirements and submit an application. The school that made the loan or the school’s Perkins Loan servicer can provide forms and instructions.
Total and Permanent Disability Discharge
If you become permanently and completely disabled, you may qualify for a federal loan discharge or Teacher Education Assistance for College and Higher Education (TEACH) Grant. You must have Direct Loans, FFEL Program loans and/or Perkins Loans. Total and Permanent Disability Discharge requires a discharge application and documentation that goes to Nelnet, the servicer that assists ED with the TPD discharge process.
Discharge Due to Death
As long as your loved ones submit the required proof of death, they can get your federal loans discharged when you die. If you had Direct Loans, FFEL Program Loans and Perkins Loans. In addition, if someone took out a PLUS Loan on your behalf, that can also become discharged.
The family or other representative must submit an original death certificate, a certified copy of the death certificate or an accurate and complete photocopy to the loan servicer.
Discharge in Bankruptcy
Very rarely, the Department of Education grants discharges due to bankruptcy. Individuals must have Direct Loans, FFEL Program loans and/or Perkins Loans. Federal student loans can be discharged with Chapter 7 or Chapter 13 bankruptcy only if by filing an adversary proceeding and showing proof that paying back student loans would result in financial hardship.
Borrower Defense to Repayment
If a school failed to do something related to your loan or failed to provide educational services the loan was intended to pay for, a borrower defense to repayment discharge may work in this case. Students who can demonstrate that a school misled them must apply for borrower defense to repayment to receive the discharge.
False Certification Discharge
Borrowers could end up with a false certification discharge if a school incorrectly certifies borrowers’ eligibility to receive loans. If a borrower has a status that disqualifies him or her, or the school signed the borrower’s name on the application or promissory note. Borrowers must have a Direct Loan and/or FFEL Program Loan. Borrowers may apply under any one of these through the False Certification Discharge application.
Unpaid Refund Discharge
If a college or university didn’t make a required return of loan funds to a loan servicer, a borrower might get a discharge for the portion of the federal student loan(s) that the school didn’t return. You must have Direct Loans and FFEL Program Loans through the application.
Learn more comprehensive details in this article on student loan forgiveness.
What All of this Talk of Student Loan Forgiveness Means for You
The Department of Education, the Biden administration have made small steps forward toward student loan overhaul, starting with the first of three days of public hearings on June 21. Commenters discussed topics for federal student aid regulations the department is planning to consider, including interest capitalization on federal student loans, Pell Grant eligibility and even arbitration clauses in student loan and enrollment agreements.
Meanwhile, the ongoing forbearance period will end on January 31, 2022. As a borrower, you may want to consider starting early to make payments toward student loans so you get in the groove of paying them now up until you actually have to pay them back by February 2022. Doing so can save you interest over the long run and help you pay off your loans faster.
Know that any interest you owed before the forbearance period will be added to what you already owe on your loans. Paying the accrued interest now can save you on interest later. If you’re already having trouble making payments or know you will once January 31 rolls around, it’s a good idea to contact your student loan servicer before that date. An income-driven repayment plan can help you make payments in alignment with your current earnings.
Nobody knows yet whether Biden can dismiss student loans with a flourish of his pen, but it’s important to remember that you still have options, whether you take budgeting on yourself or look into actual forgiveness options available right now. You can also look into options regarding other debt you have and resolving that, rather than holding out for a comprehensive student loan forgiveness package, which could be very slow to arrive — if it arrives at all.
We help over 3 million Americans track their net worth at Personal Capital. Take a look at who we help on a daily basis:
- 43,000 clients are monitoring their student loans.
- 17,000 clients have $100,000 in investable assets.
- They carry nearly $90,000 in student loan debt.
- They have almost $200,000 in investment savings on average.
Sound familiar? We can help you, too.
For more information about debt payoff options, check out Personal Capital’s article about which debt you should pay off first. Then check out Personal Capital’s free financial tools today and get started.
Personal Capital compensates Melissa Brock (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.