What we know:
There has been a lot of excitement and speculation around President Biden’s extension of the moratorium on student loan payments until October. One news source went so far as to publish a recent article titled “Biden’s Student Loan Freeze Shows Path to Erase Billions of Debt.” We know that Biden wants to address the student debt crisis, but we also want to be realistically optimistic about what that means. Your Navigate team is meeting with politicians on the Hill this week to discuss these very issues.
What do we know so far? The honest answer is that we don’t yet have a lot of hard facts. Many are speculating based on previous statements made by Senator, then Vice President, then Candidate, then President-Elect Biden. All that President Biden has officially said is that he will “extend the pause on federal student loan payments and collections and keep the interest rate at 0%.” He hopes to address student loans and Public Service Loan Forgiveness in the near future, but would prefer for Congress to act rather than through Executive Order.
So what should you do?
- If you are pursuing PSLF, right now, the answer is simple: nothing. If you’ve stayed up to date with your Qualifying Payments and employer certification, these next eight months are payment free, but still count toward PSLF. Just keep on doing what you’re doing–everyone is in a holding pattern for now.
- If you have federal loans and are waiting to refinance, keep waiting. Most federal student loan interest rates remain at 0%.
- If you’re anxious about your student loans and are exhausted by the flood of news, stop reading here. The rest of this post will talk about potential actions the Biden Administration may take.
What we are waiting to learn:
There has been a lot of talk about what the newly minted Biden Administration would/could/should do about student loan debts. We are waiting to hear what they will do. The most concrete information we have has come from the Biden/Harris campaign website prior to their election and taking office. From it, we know two things: the President wants to modify the student loan payment structure and expand opportunities for loan forgiveness, as well as revive and pass the What You Can Do for Your Country Act of 2019.
The first part of what he wants to do is pretty simple, but would mostly apply to just undergraduate federal loans:
- All borrowers would be automatically enrolled in IDR plans upon entering repayment, which would not exceed 5% of their monthly discretionary income over $25,000.
- Those with less than $25,000 would not be required to pay anything, nor would their loans accrue interest.
- After 20 years, undergraduate federal loans would be forgiven.
- The Department of Education would also create a new loan forgiveness program, under which $10,000 of federal (including graduate) debt would be forgiven for each year worked at a government agency or non-profit.
An important thing to know about all of these points is that they likely won’t apply to any already existing loans. The majority of these proposals seem to apply only to new borrowers, and are especially focused on undergraduate debt. Those looking at the numbers may also note that they will be of less benefit to high-income earners and those with larger student debts.
That’s where the What You Can Do for Your Country Act of 2019 comes in. Rather than add programs for PSLF, it will reform and expand already existing legislation. This bill was previously proposed by Senators Kirsten Gillibrand (D-NY) and Tim Kaine (D-VA), but failed to pass Congress. If successful this time around, it would make a number of changes to simplify the current PSLF structure, such as:
- Allow all types of federal loans to qualify.
- Allow all federal repayment plans to qualify.
- Ensure that the Department of Education provides public servants with clearer information and guidance.
- Allow borrowers to receive a partial forgiveness benefit after five years of public service.
- Simplify the application and certification process.
The big takeaways from this bill are that: a) the number of borrowers who qualify for loan forgiveness would increase, b) you could be eligible on any repayment plan, and c) you could reap partial benefits in half the time. The first two of these are easy enough to understand, but the third takes a little unpacking. Put simply, after five years of qualifying payments, half your debt (with no cap on the amount) and interest would be forgiven; after another five—for a total of ten years—the other half would be forgiven. While this doesn’t fundamentally change how PSLF will work for those on the 10-year track, it does mean that those who want to leave non-profit work for the private sector will be able to take advantage of it without waiting a whole decade.
None of this, however, is set in stone and the Biden/Harris Administration has yet to announce formal proposals regarding student debt (including in the new stimulus package). Until they take action, we’ll be waiting on the edge of our seats. When we hear what comes next, you’ll be the first to know.
If you have questions before that, please don’t hesitate to contact us with any questions. Before you make any big changes to your loans or repayment; check in with us so we can help you best tailor your strategy to meet your needs.