President-elect Joe Biden’s student loan forgiveness plan could help millions of people who have student loans, especially those who attended public colleges.
The amount of student loans continues to rise – debt levels reached an all-time high of nearly $1.5 trillion in November 2019, according to a Bloomberg analysis. The plan that Biden proposed during his campaign would help many student loan borrowers pay off their debt sooner, allowing them to pay down credit cards or save for a down payment to buy a home.
Remember, those with federal loans have different perks and benefits (and you're going to want to hold onto them) than those with private student loans. If you have a private student loan and don't qualify for forgiveness programs, then consider a refinance. Want terms that work best for your financial situation? Credible can do the work for you.
Here's what you need to know about Biden's student loan forgiveness plan and how it could impact you.
What’s Joe Biden’s student loan forgiveness plan?
During his presidential campaign, Biden said he would seek to make tuition free for anyone who attended public colleges and universities whose families earned less than $125,000 a year. The plan also includes free tuition at all community colleges and forgiveness of $10,000 of student loans for each year of public service for up to five years (or a maximum of $50,000).
"If you’re currently paying back student loan debt, Biden’s student loan forgiveness plan can have a significant impact on your financial health," said Leslie Tayne, a Melville, N.Y. attorney specializing in debt relief.
The public service loan forgiveness (PSLF) plan would immediately reduce student loan balances for millions of individuals in education, government, and non-profit jobs, said Amy Lins, senior director of enterprise learning at Money Management International, a Sugar Land, Texas-based nonprofit debt counseling organization. This is a change from the current PSLF plan that requires 120 on-time payments or at least 10 years before any forgiveness begins.
These proposals aim to bring relief to student loan borrowers and provide manageable repayment options, she said.
If you have a private student loan or don't qualify for forgiveness right now, you may want to consider refinancing your student loans to ease the financial burden. To see if a refinance fits into your personal finance plans, head to online marketplace Credible and crunch the numbers. Credible allows you to compare rates and lenders free of charge!
What this means for your student loans
If Biden’s proposals are passed, many people will be free of their student debt and "able to start pursuing more savings-oriented goals instead of focusing solely on paying off their debt," Tayne said.
People with lower student loan payments can save for a rainy day fund, pay down credit cards and personal loans, and/or save for a down payment to buy a vehicle or a home.
Private student loan borrowers who are not getting any relief during the coronavirus pandemic should consider other options to lower student loan payments. Visiting Credible to explore refinancing options could be a good first step.
How has the government helped borrowers during COVID?
One of the most substantial measures included in the federal Coronavirus Aid, Relief and economic Security Act (CARES) is the suspension of student loan payments and interest on federal student loans.
"This has been a great relief to the 43 million Americans with federal student loan debt," Tayne said. "In addition to this federal relief, private student loan borrowers may have also received assistance from their lenders."
If you have private student loans and you're looking for student loan payment relief, visit Credible. You can get prequalified student loan refinancing rates from up to 10 lenders to find out if this approach could save you money.
What if you're not eligible for student loan forgiveness?
Once the student loan forgiveness plan ends in January, people who have federal student loans need to resume their monthly payments. Consider adjusting your federal repayment plan to an income-driven option since it could lower your monthly payments, Tayne said. Consolidating your federal loans into a Direct Consolidation Loan is also an option.
"You may change repayment plans to lower monthly payments as often as you need, but you should be aware that doing so will likely increase the amount you pay over time due to the interest," she said. "However, high interest may be worth it if a new repayment plan will help you avoid the consequences of student loan default, such as damaged credit, garnished wages, and tax refund garnishment."
Borrowers can use the Loan Simulator at studentaid.gov to analyze the various repayment plans, review their budget to determine which payment plan is best for them, and even apply for the repayment plan from the website.
"Borrowers should not rely on reports that student debt will be canceled," Lins said. "Borrowers should assume they owe their student loans balances in full and should make a plan to resume payments."
People who have private student loans should determine how long the lender will continue its assistance agreement and see whether the lender is willing to extend more assistance, Tayne said.
Borrowers should also consider refinancing their student loans since interest rates remain very low. They can use an online tool like Credible to compare student loan refinancing rates from multiple lenders at once without affecting their credit score.
President-elect Joe Biden’s student loan forgiveness plan is helpful for people who spend a large chunk of their paycheck towards their student loan payments. Supporters said that canceling student loan debt would help people buy homes sooner and spend more money on disposable goods, boosting the economy. Opponents said the current student loan program already works, as the Consumer Financial Protection Bureau reports 80% of borrowers pay off their student loans within 12 years of starting the repayment period.