There are at least 3 ways that Joe Biden can change student loan repayment.
Here’s what you need to know.
There are many potential changes for your student loans in 2021. President-elect Biden has proposed multiple changes to your student loans. From student loan cancellation to lowering student loan payments, here are 3 ways Biden could change your student loans:
1. Student Loan Forgiveness
- Biden wants Congress to cancel student loans immediately. Biden has called on Congress to cancel $10,000 of student loans for each borrower, although details remain.
- Before you get student loan cancellation, this must happen first.
- Student loan forgiveness would be automatic after 20 years of student loan repayment.
- Currently, you can get student loan forgiveness after 20 years if you have undergraduate student loans. Most of Biden’s student loan plan focuses on college student loans, rather than on graduate school.
- Your remaining student loan balance would be forgiven, but you would not owe income tax on the amount forgiven.
- Currently, if you have get student loan forgiveness through an income-driven repayment, you owe income tax on the amount forgiven, which can create a potentially large tax bill. This potential change could save you money.
2. Lower your student loan payment
- Biden would limit student loan repayment for federal student loans to no more than 5% of discretionary income.
- Currently, income-driven student loan repayment plans — such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR) — require 10-20% of your monthly discretionary income.
- Therefore, Biden’s plan could lower your monthly student loan payment for your federal student loans.
- If you earn less than $25,000 per year, you would owe $0 per month and no interest would accrue.
- Currently, your monthly student loan payment under an income-driven repayment plan is based on your monthly income, family size and state of residence. It’s possible to pay $0 per month based on your personal financial circumstances, although interest accrues on your student loan balance.
- Therefore, Biden’s plan could lower your student loan payments, and for some borrowers, interest may not accrue on your federal student loans.
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3. Automatic enrollment in income-driven repayment plans
- Biden wants there to be automatic enrollment for income-driven repayment plans.
- Currently, you must proactively enroll in an income-driven repayment plan.
- The goal with this policy change is to save you time, confusion and frustration from having to enroll in income-driven repayment plans.
- Income-driven is not mandatory under Biden’s plan. For example, you can choose to opt-out (as millions of borrowers will) and refinance student loans instead.
How to pay off student loans faster
What’s the best way to pay off student loans? Biden’s student loan plan can help simplify student loan repayment—and help you save money. That said, Congress may have to implement these changes before you can benefit. Like other policy proposals, there’s no guarantee that Congress will change your student loans. These proposals also would impact federal student loans, so not private student loans. That’s why it’s important to understand your options for student loan repayment now. Start with these three options, all of which have no fees:
5 student loan changes for 2021
Biden wants to cancel student loans, but this must happen first