Potential Election Impact on Student Loans

By Kaitlin Hurtado on December 1, 2020

Plenty was at stake in the 2020 Presidential election, to put it simply. For America’s 42 million student loan borrowers, there were two different potential impacts on their loans as both presidential candidates had very different proposed policies for student loans. Biden expressed his plan through campaign promises and Trump relayed his plan through his 2021 budget proposal.

According to the Federal Reserve, borrowers hold more than $1.6 trillion in student loan debt as of the second quarter of 2020. As of 2019, 43% of those who attended college had taken on debt in order to attend school.

During the pandemic, federal student loan borrowers were issued flexibilities on student loans, which included suspended loan payments, halted collections on defaulted loans, and set interest rates at 0%. This was passed back in March as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and was supposed to be in place until September 30. As the pandemic raged on, President Donald Trump extended the flexibilities to December 30. Regardless of what the results of the 2020 election were, this policy would not change as it was signed into law.

However, with less than two months until flexibilities go away, borrowers are asking, “What’s next for student loans?”

On November 7, Joe Biden was declared the winner of the election, making him the President-elect. While Trump is continuing his effort to challenge results, many are looking at how the election’s results can impact top issues, like student loans.

Changes for federal student loan servicing

In June 2020, the US Department of Education announced new contracts with five private companies. These companies will collect payments and provide borrowers with guidance on repayments, effectively replacing contracts with the nine companies also offering these services.

This change won’t happen immediately. FedLoan Servicing (PHEAA), Great Lakes, Navient, and Nelnet will continue servicing loans until December 2021. CornerStone, Granite State–GSMR, HESC/Edfinancial, MOHELA, and OSLA Servicing will continue through March 2022. In that time, borrowers will get information from the department on how to transition to their new servicer. This change is expected to happen regardless of whatever may result from this election.

via Pexels

Biden’s “Plan for Education Beyond High School”

In his campaign’s plan, Biden stated that he supported two years of free community college, tuition-free public college for students from families who are earning less than $125,000 per year and doubling the maximum Pell Grant for students.

Biden also proposed major changes to the current repayment system. Now, borrowers repay on income-driven plans that connect monthly payments to income. For borrowers who earn $25,000 or less per year, Biden proposed setting interest rates to 0% and eliminating student loan payments altogether.

All other borrowers would be set on the same income-driven repayment plan automatically:

  • Payments would be set at 5% of discretionary income, after the first $25,000 earned. Currently, income-driven plans require monthly payments of 10% to 20% of income.
  • The remaining balance would be forgiven after 20 years of payments.
  • The forgiven amount would not be taxed. The current tax code requires the forgiven amount to be taxed as income.
  • Borrowers could opt out of the program if they choose to.

Student loan forgiveness

Previously, Biden said he would forgive tuition-related undergraduate federal student loan debts that were acquired at public colleges and historically Black colleges and universities for borrowers earning less than $125,000 a year. Additionally, he would also forgive $10,000 in student debt for all borrowers.

Public service loan forgiveness was signed into law by President George W. Bush back in 2007. It allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years of on-time payments. Up to one-quarter of American workers are eligible.

In a proposed budget for 2021, Trump reduced the number of repayment options for borrowers and cut the public service forgiveness program, as reported by CNBC. Biden, on the other hand, would keep the program and make changes to it. Rather than canceling the borrowers’ remaining debt after a decade of payment, he would forgive $10,000 a year of their debt for up to five years.

Monthly student loan bills

Biden proposed monthly loan bills at 5% of borrowers’ discretionary income and that they would be on the plan for 20 years. Discretionary income is the amount of an individual’s income that is left for spending, investing, or saving after paying taxes and paying for personal necessities (housing, food, and clothing).

In contrast, Trump proposed monthly bills that would be 12.5% of student loan borrowers’ discretionary income, keeping undergraduate students on the plan for 15 years and graduate students on for 30 years.

No “instant” results

Whatever you may be feeling about these proposed plans, remember: they are proposed plans. While they offer a glimpse of the actions Biden would take while in office, that doesn’t mean they will automatically happen.

Biden’s plan will have to pass Congress. For context, Trump’s prior budgets have been rejected by Congress and required further negotiations.

Student loans can be intimidating or stressful for anyone, regardless of where they are in their life financially. Remember to stay updated and be active in reading up on any policy changes that may affect you and your student loans.

Follow Uloop

Apply to Write for Uloop News

Join the Uloop News Team

Discuss This Article

Back to Top

Log In

Contact Us

Upload An Image

Please select an image to upload
Note: must be in .png, .gif or .jpg format
OR
Provide URL where image can be downloaded
Note: must be in .png, .gif or .jpg format

By clicking this button,
you agree to the terms of use

By clicking "Create Alert" I agree to the Uloop Terms of Use.

Image not available.

Add a Photo

Please select a photo to upload
Note: must be in .png, .gif or .jpg format