Student Loan News: Biden Details Student Aid Plan

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Welcome to Student Loan News, a weekly summary of developments and events affecting college debt in the U.S. Join us each Friday for a look at goings-on that could impact your own student loan situation.

Biden promises free community college, lighter loan repayment

One way you might lower your college costs is to enroll in a two-year program before transferring to finish your degree at a four-year school. Joe Biden, one of the frontrunners in the presidential race, hopes to make that route even more appealing — by making it free.

Zero-cost community college was at the center of the former vice president’s proposal for higher education, unveiled Tuesday on his campaign website, expected to cost $750 billion over 10 years. The “first dollar” financial aid would cover tuition and fees, meaning that other grants, scholarships and assistance could be used to cover secondary expenses, such as room and board.

Biden, who also pledged to double Pell Grant awards and increase funding for Historically Black Colleges and Universities and Minority-Serving Institutions, previously offered a rough outline of his vision for higher education in August.

The veteran Democrat’s proposed changes for borrowers who are already saddled with student loan debt are more modest than the plans put forth by Sen. Elizabeth Warren (D-Mass.) or Sen. Bernie Sanders (I-Vt.), both of which surpass the $1 trillion price tag.

However, Biden’s plan would mean significant changes to the current system for federal loan borrowers, including:

  • Automatic enrollment in an income-driven repayment plan (but with the option to switch plans)
  • Delay payments until the borrower is earning an income of at least $25,000 (with no interest accruing until that point)
  • Monthly payment capped at 5% of discretionary income (rather than 10%-15%, as it stands now)
  • Loan forgiveness after 20 years of repayment (currently some plans require 25 years) and with no tax on the canceled amount
  • Higher approval rates for Public Service Loan Forgiveness (which cancels the outstanding student loan balances of government and nonprofit employees after 10 years)

These modifications could lighten borrowers’ monthly burden, but at the same time prolong repayment. Biden’s revamp of income-driven repayment would also be more expensive for taxpayers, as there are no income requirements to join the program — unlike the current system — and even those with large salaries can take part.

How it affects YOU: If you’re a current or future student, you might consider the community college path, regardless of whether Biden makes it to the White House or not. Spending your first two years at a lower-cost school close to home could save you thousands of dollars — $11,377 on average, according to our research.

If, on the other hand, you’ve been off campus for a while, Biden’s proposal could significantly change the trajectory of your federal student loan repayment. You could lower your monthly payment to a more manageable amount and receive relief at the 20-year mark. (Biden wouldn’t offer forgiveness on private loans, as the Warren and Sanders plans do, but he would make it possible for borrowers to discharge the debt via bankruptcy.)

Stay informed by learning about each presidential contender’s plan for college costs and student loan relief.

Also in the news …

  • Education Secretary Betsy DeVos drew harsh criticism for violating a judge’s ruling to stop collecting student loan payments from defrauded Corinthian Colleges’ alumni. U.S. Magistrate Judge Sallie Kim said that “at best, it is gross negligence, at worst it’s an intentional flouting of my order,” according to Bloomberg and other news agencies. Politico previously reported that these approximately 16,000 borrowers were due to receive refunds.
  • Late last week, New York Attorney General Letitia James sued FedLoan Servicing for allegedly mismanaging Public Service Loan Forgiveness (PSLF). So far, just 1% of PSLF applications have been approved. The move follows a similar suit in 2017 by Massachusetts’ attorney general.
  • The American Enterprise Institute released a report Wednesday suggesting some criticism of federal loan servicers should be instead leveled against the federal loan system itself. It called for a simpler system, having found that less than half of a random sampling of 1,200 complaints from the Consumer Financial Protection Bureau’s database were about issues under servicers’ control.
  • On Monday, Philadelphia city councilman David Oh proposed a $1,500 tax credit for student loan borrowers holding at least $35,000 worth of education debt. Oh’s bill would grant residents $7,500 in credits over five years, according to the Philadelphia Enquirer.

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Published in News & Policy, Student Loans

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