Joe Biden’s plan to forgive student loan debt explained

President-elect Joe Biden’s student loan forgiveness plan doesn’t go as far as the plans touted by some of his former challengers for the Democratic nomination, but it could result in student loan cancellations for millions of people.

Americans collectively hold more than $1.5 trillion in student loans, and the financial strain has caused people to delay marriage, buy homes, and have children. As some lawmakers, including Senators Bernie Sanders and Elizabeth Warren, pressed for widespread forgiveness, Biden’s election win raised hopes that relief was on the horizon.

Under Biden’s plan, detailed on his website, his government would make student loans for people who have “made payments responsibly” for 20 years. Those payments would be 5 percent of a borrower’s “disposable income,” defined as “income less taxes and essential expenses such as housing and food,” over $25,000.

Borrowers would be automatically enrolled in the program but could opt out if they wished.

Biden’s plan also includes loan forgiveness for civil servants. The new program would offer $10,000 in debt relief for undergraduate and graduate students for each year of national or community service for up to five years. Five years of prior national or community service also allows an individual to qualify for the program.

President-elect Joe Biden comments on the US economy during a news conference at the Queen Theater in Wilmington, Delaware on Monday. Biden’s plan as president is to forgive millions of people on student loans.
Joe Raedle/Getty

He also plans to pass the What You Can Do For Your Country Act of 2019, a bill introduced in the House of Representatives in May that would forgive certain borrowers who work in the public sector 50 percent on loans and interest after 60 payments and 100 percent would be after payments of 120. To be eligible for forgiveness, a person must be registered with a federal, state, local, or tribal governmental organization, 501(c)(3), law enforcement, public education, or public health, or other eligible organization work.

Although these are the plans Biden has listed on his website, it’s possible his administration could take student loan forgiveness a step further.

In March, Biden tweeted that a coronavirus relief bill should include a waiver of at least $10,000 for every federal student loan borrower.

“Young people and other student debt holders have borne the brunt of the recent crisis. It shouldn’t happen again,” Biden wrote.

He reiterated a commitment to forgive $10,000 in student loan debt after the election win. A majority of Americans support canceling up to $10,000 in student loan debt for each borrower, an August poll by Morning Consult found.

Biden’s ability to enact student-loan and forgiveness reform likely depends on the outcome of Georgia’s January runoff. If Democrats take both Senate seats, they can form a majority with Senator Kamala Harris as vice president and cast the deciding vote in the event of a tie.

If they lose even one of the seats, Republicans will continue to hold the Senate majority, which would pose a potential obstacle to passing legislation.

With a $10,000 forgiveness program, borrowers with $30,000 in debt would receive about $100 in additional monthly expenses over the next 10 years, according to the Urban Institute. A “long end to payment cuts” would “do little to stimulate spending,” the Urban Institute said, leaving the “immediate benefits” modest.

However, full credit relief could add as much as $108 billion to real GDP, William Foster, a vice president at Moody’s, told NPR in 2019.

“Student loans are now contributing to what is perceived as a lower economic outlook for younger Americans,” Foster said.

Biden has not publicly disclosed how he will fund the forgiveness, but Foster noted that doing so would mean the federal government would have to forego revenue it generates from collecting the loans. That could result in a “larger budget deficit,” and imposing additional taxes on people could “put a strain on the economy,” according to NPR.

Senators Warren, Chuck Schumer, Patty Murray and Sherrod Brown days earlier unveiled a plan to forgive $10,000 in federal loans. As a presidential candidate, Warren proposed forgiving up to $50,000 in student loans to about 42 million people. She endorsed Biden for president in April.

Months later, in September, Warren called on the next president, regardless of who won the election, to “take executive action to eliminate student loan debt across the board” by up to $50,000.

news week reached out to the Biden campaign for comment, but did not receive a response in time for publication.

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