Joe Biden Has a Sweeping New Student Loan Plan

© 2019 Bloomberg Finance LP

Former Vice President Joe Biden, a contender for the 2020 Democratic nomination for president, has just released a new, $750 billion student loan and college financing reform proposal. It goes significantly further than previous student loan reform plans he has touted on the campaign trail. Here are the highlights.

Income-Driven Repayment

Biden's plan would revamp and simplify income-driven repayment plans. Instead of having a menu of multiple income-driven repayment options like Income Based Repayment (IBR), Income Contingent Repayment (ICR), and Pay As You Earn (PAYE) -- each of which has its own unique formula and eligibility criteria -- Biden's plan would have just one income-driven plan that would improve upon the existing system. Here are some key details:

  • Borrowers earning less than $25,000 per year would not have to pay anything.
  • Borrowers earning more than $25,000 per year would pay only 5 percent of their discretionary income. This represents a 50% reduction in the monthly payment amount compared to the Pay As You Earn plan, and about a 66% reduction in the monthly payment amount compared to the Income Based Repayment (IBR) plan. So borrowers across the board would have much lower payments.
  • The repayment term would be 20 years -- similar to Pay As You Earn, but shorter than IBR.
  • If the borrower has not repaid their loans by the end of the 20-year term, the remaining balance would be forgiven. Furthermore, Biden's plan would reform the tax code to exempt this type of loan forgiveness from taxation.

Public Service Loan Forgiveness

Biden proposes substantial changes to the Public Service Loan Forgiveness (PSLF) program to streamline the program and reduce its many problems. Here are some highlights:

  • Borrowers working in qualifying employment would be automatically enrolled in the PSLF program -- removing the need for people to take affirmative steps to start getting credit.
  • Rather than needing to wait until the end of their 10-year service to get the loan forgiveness benefit, borrowers would get $10,000 of loan forgiveness for every year of qualifying public service employment.
  • Up to five years of prior national service or community service would also be counted as credit towards PSLF.

Biden's plan also incorporates the What You Can Do For Your Country Act, a bill that would dramatically simplify and improve the PSLF program.

Free Community College

Biden's plan would create a federal-state partnership to provide federal incentives for states to create free community college programs. The federal government would kick in 75% of the cost, and states would be expected to cover the other 25%.

The program would not be limited to recent high school graduates. It would also be available to nontraditional students, part-time students, and Dreamers.

Costs

Biden's plan is projected to cost $750 billion. It would be paid for by levying additional taxes on the wealthy by eliminating itemized deductions for wealthy taxpayers and closing some tax loopholes.

Conclusion

This new student loan plan is far more comprehensive than anything the former Vice President has released so far, and it does offer substantial improvements to the existing student loan and financial aid system. It does not go as far as plans offered by Sen. Elizabeth Warren or Sen. Bernie Sanders, which call for widespread student loan forgiveness and free college (not just community college).

Voters will ultimately have to make a decision about which plan is best.

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© 2019 Bloomberg Finance LP

Former Vice President Joe Biden, a contender for the 2020 Democratic nomination for president, has just released a new, $750 billion student loan and college financing reform proposal. It goes significantly further than previous student loan reform plans he has touted on the campaign trail. Here are the highlights.

Income-Driven Repayment

Biden's plan would revamp and simplify income-driven repayment plans. Instead of having a menu of multiple income-driven repayment options like Income Based Repayment (IBR), Income Contingent Repayment (ICR), and Pay As You Earn (PAYE) -- each of which has its own unique formula and eligibility criteria -- Biden's plan would have just one income-driven plan that would improve upon the existing system. Here are some key details:

  • Borrowers earning less than $25,000 per year would not have to pay anything.
  • Borrowers earning more than $25,000 per year would pay only 5 percent of their discretionary income. This represents a 50% reduction in the monthly payment amount compared to the Pay As You Earn plan, and about a 66% reduction in the monthly payment amount compared to the Income Based Repayment (IBR) plan. So borrowers across the board would have much lower payments.
  • The repayment term would be 20 years -- similar to Pay As You Earn, but shorter than IBR.
  • If the borrower has not repaid their loans by the end of the 20-year term, the remaining balance would be forgiven. Furthermore, Biden's plan would reform the tax code to exempt this type of loan forgiveness from taxation.

Public Service Loan Forgiveness

Biden proposes substantial changes to the Public Service Loan Forgiveness (PSLF) program to streamline the program and reduce its many problems. Here are some highlights:

  • Borrowers working in qualifying employment would be automatically enrolled in the PSLF program -- removing the need for people to take affirmative steps to start getting credit.
  • Rather than needing to wait until the end of their 10-year service to get the loan forgiveness benefit, borrowers would get $10,000 of loan forgiveness for every year of qualifying public service employment.
  • Up to five years of prior national service or community service would also be counted as credit towards PSLF.

Biden's plan also incorporates the What You Can Do For Your Country Act, a bill that would dramatically simplify and improve the PSLF program.

Free Community College

Biden's plan would create a federal-state partnership to provide federal incentives for states to create free community college programs. The federal government would kick in 75% of the cost, and states would be expected to cover the other 25%.

The program would not be limited to recent high school graduates. It would also be available to nontraditional students, part-time students, and Dreamers.

Costs

Biden's plan is projected to cost $750 billion. It would be paid for by levying additional taxes on the wealthy by eliminating itemized deductions for wealthy taxpayers and closing some tax loopholes.

Conclusion

This new student loan plan is far more comprehensive than anything the former Vice President has released so far, and it does offer substantial improvements to the existing student loan and financial aid system. It does not go as far as plans offered by Sen. Elizabeth Warren or Sen. Bernie Sanders, which call for widespread student loan forgiveness and free college (not just community college).

Voters will ultimately have to make a decision about which plan is best.

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I’m an attorney with a unique practice devoted entirely to helping student loan borrowers. I provide counsel, legal assistance, and direct advocacy for borrowers on a va...