President Joe Biden (Photo by David Lienemann/The White House via Getty Images)
Democrats in Congress have proposed 5 changes to student loan cancellation.
Here’s what you need to know — and what it means for your student loans.
Student Loans
In a letter to U.S. Secretary of Education Miguel Cardona, a group of progressive Democrats — including Senate Majority Leader Chuck Schumer (D-NY) and Sen. Elizabeth Warren (D-MA) — have proposed five changes to student loan repayment and student loan cancellation. Here are their 5 main proposals:
1. Make a new student loan repayment plan like this
Income-driven repayment plans help millions of student loan borrowers, but they are too complex. Rather than have multiple income-driven repayment plans, which can confuse student loan borrowers, the Education Department should create a new income-driven repayment plan that is available to all current and future student loan borrowers. Under the new student loan repayment plan for federal student loans:
- student loan payments would be capped at no more than 10% of discretionary income;
- student loan payments for no more than 20 years;
- student loan forgiveness after 20 years;
- student loan borrowers should be able to “prioritize their living expenses” ahead of student loan payments;
- student loan interest shouldn’t accumulate faster than student loan borrowers can repay their student loans (”no negative amortization”);
- existing student loan borrowers should be automatically transferred to this new, single student loan repayment plan; and
- new student loan borrowers should be able to enroll seamlessly with easy sharing of tax information to reduce bureaucracy.
2. Student loan cancellation for all federal student loans, the borrower defense to repayment rule
The members of Congress say that it should be easier to get student loan cancellation for student loan borrowers who are defrauded by their schools, including predatory for-profit colleges. They argue that under the Trump administration, the standard became onerous for borrowers having to prove their colleges harmed them and made it challenging to get student loan cancellation. Instead they want:
- establish a consistent, fair and equitable borrower defense rule;
- applies to all current, future and former federal student loan borrowers;
- full student loan cancellation should be the presumption, not the exception to the rule;
- any federal student loan borrower who was the victim of “unlawful, unfair, deceptive or abusive practices in higher education” should get student loan cancellation;
- where possible, student loan borrowers shouldn’t have to submit an application for student loan cancellation;
- no statute of limitations for student loan cancellation;
- no forced arbitration agreements or limitations on class action lawsuits; and
- states should help student loan borrowers get additional student loan relief, where possible.
3. Give automatic student loan cancellation when your college closes
When a college closes without warning, it can be devastating to students who pursuing a degree. Democrats want the following:
- give automatic student loan cancellation for federal student loans when a college closes;
- student loan cancellation without the need to apply;
- remove the limitation that disallows student loan cancellation if you transfer to another college;
- automatic student loan cancellation within 90 days of the college closing;
- student loan cancellation should happen quickly so that student loan borrowers can afford to attend their next college; and
- if a student leaves a school that is showing warning signs of closing, the Education Department should institute a 180-day look back period that allows a student to get student loan cancellation even if the student wasn’t there at the time the school closed.
4. Automatic student loan cancellation for student loan borrowers with disabilities
Democrats want to strengthen the ways that student loan borrowers with disabilities can get student loan cancellation. For example, they propose:
- remove requirement to submit an application to get student loan cancellation for federal student loans;
- remove the requirement of a “monitoring period” of potential earnings;
- student loan discharge should happen within 90 days upon notice from the U.S. Department of Veterans Affairs or the U.S. Social Security Administration;
- change the definition of “total and permanent disability” to determine if there other student loan borrowers who are disabled but still unable to work and whether they should qualify for student loan cancellation; and
- determine if there are student loan borrowers with a disability who should qualify for student loan cancellation.
5. More student loan borrowers should qualify for student loan forgiveness
The signatories call for changes to student loan forgiveness for the Public Service Loan Forgiveness program, including:
- advance student loan payments and lump-sum student loan payments should count as qualifying student loan payments;
- the Employment Certification and student loan forgiveness form should be streamlined into a single form;
- when student loan borrowers consolidate student loans, their student loan payments should not have to be reset;
- economic hardship deferment or military service deferment should count toward qualifying student loan payments for student loan forgiveness;
- working for multiple employers for at least 30 hours a week total should be eligible for student loan forgiveness;
- create rules for employers who refuse to sign an Employer Certification form;
- borrowers who have been approved for qualifying student loan payments shouldn’t be penalized if the error was made by a student loan servicer or the U.S. Department of Education;
- create a clear appeals process for any student loan borrower who is denied for student loan forgiveness; and
- and institute more data sharing across federal departments, such as with the U.S. Department of Defense.
Student loans: final thoughts
Biden has cancelled $3 billion of student loans since becoming president. First, Biden cancelled $1 billion of student loans for 72,000 student loan borrowers. Second, Biden cancelled another $1.3 billion of student loans for 41,000 borrowers with total and permanent disability. Third, Biden granted student loan relief for 1.1 million student loan borrowers who defaulted on their FFELP Loans. Fourth, Biden cancelled $500 million of student loan debt for 18,000 student loan borrowers under the borrower defense to student loan repayment rule. It’s likely that Biden would support many of the proposals outlined in this letter. Likewise, the Education Department would be sympathetic to most of these proposals too. The overarching theme is to make more student loan borrowers eligible for student loan forgiveness and remove unfair rules that create impediments to student loan cancellation. Many of these proposals are about reducing bureacracy and unfair practices that are hurting student loan borrowers. Some are quick fixes, while others may take more time such as determining what a single income-driven repayment plan would look like. That said, the Education Department is likely to consider all these proposals seriously and likely would implement many.
Even if any of these rules are adopted, you may not qualify for student loan forgiveness. That’s why it’s essential to understand all your choices for student loan repayment. Here are some popular options to save money:
