A new proposal would suspend your federal student loan payments until December 31, 2021.
Here’s what you need to know.
Could your student loans be suspended for another 15 months? It may sound like just another student loan proposal, but it’s the person behind the proposal that may make you think twice. Dr. A. Wayne Johnson, who effectively ran the federal student loan program at the U.S. Department of Education during the Trump administration, has several recommendations on how to improve student loans. Johnson, who is now a candidate for the U.S. Senate from Georgia and not an elected official, shared his perspectives with Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY) in a letter. Here are his five key recommendations for your student loans, and what he believes should be included in the next stimulus package:
1. Suspend student loan payments through December 31, 2021
Johnson would suspend all federal student loan payments, including any accrual of interest, through December 31, 2021. Johnson’s proposal is more “aggressive” than current proposals from both Republicans and Democrats. In the Heroes Act, for example, Democrats said federal student loan payments should be suspended until March 31, 2021. President Donald Trump suspended federal student loan payments through December 31, 2020. Therefore, Johnson would extend the student loan payment pause for one year longer than Trump, and nine months longer than Democrats. Johnson wrote that “people need more time to plan their lives.” Through December 31, 2021, Johnson also would suspend collections on defaulted federal student loans as well as garnishments on wages, Social Security payments and income tax refunds. Like the Cares Act — the $2.2 trillion stimulus package that Congress passed in March — Johnson would count any “non-payment” of federal student loan debt during this period toward the required 120 monthly payments for the Public Service Loan Forgiveness program.
2. Cancel student loan debt in bankruptcy
Johnson says that all student loan debt, including both federal student loans and private student loans, should be dischargeable in bankruptcy. Currently, unlike mortgage debt or credit card debt, it’s challenging (although not impossible) to cancel student loan debt in bankruptcy. Typically, under one legal standard, borrowers must prove an undue financial hardship to have their student loans discharged in bankruptcy. Johnson says Congress should allow student loan borrowers to discharge student loans without regard to undue hardship. However, Johnson notes that borrowers must have held the student loan debt for at least 10 years before they can discharge student loans. Joe Biden, the presumptive Democratic nominee for president, now supports allowing borrowers to discharge their student loans in bankruptcy.
3. No student loan forgiveness at this time
With the exception of the student loans bankruptcy proposal, Johnson doesn’t support student loan forgiveness in the next stimulus package. Johnson writes that any cancellation of student loan debt, beyond bankruptcy, “would be haphazard and irresponsible if enacted on a standalone or reactionary basis.” However, before December 31, 2021, Johnson believes that:
- Congress should cancel up to $1 trillion of federal student loan debt.
- The student loan debt cancellation would be part of a “Grand Bargain” that would “abolish” the current federal student loan program.
- The current federal student loan program should be replaced with an “enhanced Federal Student Scholarship Grant Program — An Opportunity Plus Plan for Higher Education.”
- Each high school graduate should receive a $50,000 Opportunity Plus Scholarship Grant to use for job training or undergraduate higher education.
- A federal income sharing agreement would be implemented for graduate school students.
- Federal student loan debt up to $50,000 would be cancelled for each borrower, at an amount equal to the scholarship grant.
- If you don’t have student loan debt, you would be entitled to up to a $50,000 income tax credit.
Johnson says his plan would cancel approximately $1 trillion in federal student loan debt and eliminate student loan debt for 35 million Americans.
4. Impose a 1% tax on all corporations
Johnson would pay for his student loan debt proposal by imposing a 1% tax on top-line revenue (rather than on earnings) of all corporations, including for-profit and non-profit corporations, including colleges and universities. Johnson says his plan would provide $225 billion each year, which he says would cover student loan debt cancellation and fund higher education programs.
5. Remove student loan debt from credit reports
Johnson would remove your federal student loan debt from your credit reports at all credit bureaus. Why? Johnson says the current student loan system has “created inaccurate and unfair credit bureau reporting.” By removing this credit information, Johnson believes that more Americans can borrow money at lower interest rates. Johnson also says that student loan borrowers who are enrolled in an income-driven repayment plan wouldn’t have “their credit bureau file…reporting information interpreted as being negative.”
How to pay off student loans
Currently, the next stimulus package is not expected to include any of these student loan proposals. That said, Congress may consider these proposals in future legislation. For example, there has been bipartisan support to cancel student loan debt in bankruptcy. In the meantime, make sure you have a game plan to pay off student loans. What’s the best way to start? Start with these four options, all of which have no fees:
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