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What to Look Out For: Student Loan Legislation

Student loan legislation has been a popular talking point amongst Democrats for years. Now that they have control in both chambers of Congress and the Presidency, what can we expect during the next couple of years? The articles below dive deep into what policies we can expect to see proposed, as well as any roadblocks among the way.

  1. https://www.cnbc.com/2021/01/08/student-loan-forgiveness-could-be-more-likely-but-challenges-remain-.html
  • President-elect Biden said he will ask Congress to immediately cancel $10,000 in student debt per borrower in response to Covid-19. He will also ask Congress to extend the payment pause that’s scheduled to lapse this month rather than utilizing an executive order. It remains unclear how long the payment pause will be extended by Biden.
  • Chuck Schumer and Sen. Elizabeth Warren, along with other progressive Democrats, are calling on Biden to forgive $50,000 per borrower on the first day of his presidency through an executive order. We can expect to see tension amongst members of the Democratic Party.
  • An executive order of student loan cancellation would likely run into court challenges. With the Supreme Court currently heavily favoring conservatives, Biden will likely be keeping this in mind.
  • Not all Democrats may be on board for student debt forgiveness and procedural rules in the Senate generally require legislation to garner 60 votes. While Republicans have not given much voice to this issue, it can be expected that they will not be in support.
  1. https://finance.yahoo.com/news/joe-bidens-student-loan-forgiveness-130000754.html
  • Tax consequences of student loan forgiveness:
    • Goldman Sachs suggests borrowers may be expect to pay income taxes at a rate of 20% of the amount forgiven.
    • President-elect Biden vowed to amend the tax code to make forgiveness through the income-based repayment program tax free.
    • If you cannot afford your tax bill right away, the IRS will begin charging you interest and fees.
  • Forgiveness proposals only apply to federal student loans.
  1. https://www.forbes.com/advisor/student-loans/student-loans-forecast/
  • The HEROES Act that passed the House of Representatives in May 2020 included cancelling up to $10,000 in federal student loan debt and $10,000 in private loan debt per borrower. If the borrower had less than $10,000 in loans outstanding, whole balance would be wiped clean. This plan did not become law. However, we can expect some Democrats to advocate for private student loan forgiveness to be included in the legislation.
  • On the campaign trail, President-elect Biden proposed an opt-in repayment plan that would automatically set up payments and interest rates to zero for borrowers earning $25,000 or less. All other federal loan borrowers would be charged 5% of discretionary income after their first $25,000 and would then receive tax-free forgiveness on the remaining balance after 20 years.
  • Biden also supports streamlining the Public Service Loan Forgiveness Program so that eligible borrowers are more likely to receive forgiveness.
  1. https://www.forbes.com/sites/advisor/2020/09/21/your-student-loans-and-the-2020-election-what-to-expect/?sh=23eb0ba43be8
  • President-elect Biden proposes creating a new forgiveness program that would forgive $10,000 of undergraduate or graduate student debt for each year of public service work over five years, and eligible workers would automatically be enrolled.
  • Biden says he would work to enact a law permitting the discharge of private student loans in bankruptcy.
  1. https://www.forbes.com/sites/zackfriedman/2021/01/11/3-ways-biden-can-change-student-loan-repayment/?sh=6e8a4da761c4
  • Student loan forgiveness would be automatic after 20 years of student loan repayment
  • President-elect Biden would limit student loan repayment for federal student loans to no more than 5% of discretionary income
  1. https://nypost.com/2021/01/04/aoc-plans-to-push-joe-biden-hard-to-cancel-student-loans/
  • Congresswoman Alexandria Ocasio-Cortez is a large force behind Biden’s $10,000 student loan cancellation proposal.
  • Biden has voiced uncertainty over the legality of cancelling student debt via executive order
  1. https://www.businessinsider.com/outgoing-education-secretary-besty-devos-advised-against-student-loan-forgiveness-2021-1
  • Outgoing Sec. DeVos urged against student loan forgiveness in her outgoing letter to Sen. Mitch McConnell, calling it the most regressive of policy proposals.
  1. Why Do Some People Oppose Student Loan Cancellation? (forbes.com)

If Congress cancels $10,000 in student loans per borrower, the estimated price tag would be $400-$450 billion. Fiscal conservatives, generally Republicans, will likely balk at this. For example, Sen. Mitt Romney has expressed misgivings over any additional financial assistance during the pa