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.
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.