There have been many discussions about what to do about America’s enormous student loan debt problem. There have been billionaires paying off people’s loans, and scammers preying on student’s vulnerability. Student loan forgiveness programs have not done well. Forbes’s recent article, “Expect These Student Loan Changes In 2020” reviews some of the issues being considered by Congress.
Student Loan Forgiveness. 2020 presidential candidates Senator Bernie Sanders and Senator Elizabeth Warren both are in favor of loan forgiveness. However, the U.S. Secretary of Education, Betsy De Vos, is against wide-scale student loan forgiveness and said it would be “crazy.” Her big concern is who will pay for student loan forgiveness. DeVos believes that, ultimately, federal taxpayers will pay.
Free College. While many Democratic presidential candidates are in favor of “free” community college, others are divided on tuition-free public colleges, which would need federal funding and state cooperation.
No Origination Fees on Student Loans. House Democrats have proposed The College Affordability Act, which would update the Higher Education Act of 1965. The bill would get rid of origination fees, when taking out student loans.
Income-Driven Repayment. An income-driven repayment plan, like PAYE and REPAYE, limits your monthly student loan payment, based on your discretionary income and then allows for student loan forgiveness after 20 to 25 years of on-time payments.
Former Vice President Joe Biden wants to simplify income-based repayment for federal student loans. He proposes that if you make less than $25,000 per year, you’d owe no payment on your undergraduate student loans and also no interest would accrue. If you make more than $25,000 per year, you’d pay only 5% of your discretionary income over $25,000 toward federal student loan payments.
After 20 years of student loan repayment, the rest of your federal student loans balance would be forgiven. That amount wouldn’t be subject to income tax.
Public Service Loan Forgiveness. President Trump proposed to eliminate this program, and instead wants a single income-driven repayment plan that would limit monthly student loan payments to 12.5% of discretionary income and forgive federal student loans after 15 years. Biden says this is broken, and he’d create a new program that offers $10,000 of undergraduate or graduate student loan debt relief for each year of national or community service (up to five years). If you work at a school, in the government, or for a non-profit, you’d be enrolled automatically in this program.
Discharge of Student Loans in Bankruptcy. There’s a bipartisan proposal to let borrowers discharge their student loans in bankruptcy.
Refinancing Student Loans. One proposal, The College Affordability Act, would give student borrowers the option of refinancing their current student loans to today’s low interest rates.
The federal government does not refinance student loans. To do so, borrowers need to work with a private lender to lower interest rates, shrink monthly payments and pay off the loans faster.
Reference: Forbes (October 28, 2019) “Expect These Student Loan Changes In 2020”