Leading Democratic presidential candidate Joe Biden has just released his plan to tackle the American epidemic of student loan debt.
Biden's plan would make student loans easier to pay off for current borrowers, fix the flawed Public Service Loan Forgiveness program, and take several other steps to make higher education more affordable -- both during and after college. With that in mind, here are the key points of Biden's student loan plan, how it compares with rivals, and what measures it would (and would not) take.
How Biden's plan works: The key points
Biden's plan doesn't just reduce the student loan burden on borrowers; it also addresses other aspects of the student loan system. With that in mind, here are the key points of Biden's student loan plan.
- Lower or eliminate monthly loan payments. Under Biden's plan, the income-driven student loan repayment system would be dramatically simplified. Borrowers who make less than $25,000 per year would not need to make payments, and interest would not accrue. Borrowers who make more than $25,000 would have to pay just 5% of their discretionary income towards loan payments. For comparison, the most lenient form of income-driven repayment right now sets the monthly payment at 10% of discretionary income, so this would effectively cut payments in half for many borrowers. If you pay $400 per month under income-driven repayment now, you could expect this to drop to $200 if Biden's plan becomes law.
- Forgive debt after 20 years. After 20 years under Biden's income-based plan, the remainder of borrowers' federal student loan debt would be forgiven. Any forgiven loans wouldn't be taxable.
- Automatic enrollment in income-based repayment. Unlike the current system, in which borrowers are placed in the 10-year standard repayment plan, Biden's plan would automatically enroll borrowers for income-based repayment unless they choose to opt out.
- Fix Public Service Loan Forgiveness. Biden wants to fix the current Public Service Loan Forgiveness program, which is full of loopholes and is difficult to understand and participate in. He also wants to create a new program that would forgive $10,000 of student loan debt for each year of national or community service, up to five years.
- Tuition-free community college. Unlike some of his rivals, Biden is not in favor of free public universities, but he does support two years of free community college.
- Expand Pell Grants. Biden's plan calls for doubling the maximum value of the federal Pell Grant. The maximum Pell Grant is $6,195 for the 2019-2020 school year, so this would result in significantly more money for low- to middle-income students.
One of the most important questions concerning plans to fix student loan debt is how they'll be paid for. Biden's plan will cost $750 billion over a decade, which he claims will be paid for by eliminating the step-up in basis tax loophole for inherited property and by capping itemized deductions for the wealthiest Americans.
How it compares with rivals
Despite the significant changes it proposes, Biden's plan is much less ambitious (some would say less radical) than those proposed by rivals Bernie Sanders and Elizabeth Warren. Sanders wants to simply forgive all student loan debt, while Warren wants to cancel all student loan debt for more than 75% of borrowers and at least some for 95%.
Furthermore, Sanders and Warren both want to eliminate tuition and fees at all public colleges, not just two-year schools.
The bottom line on Joe Biden's student loan plan
To avoid wading into a political debate, I won't comment on whether the student loan plans of any specific candidate are practical, or whether one plan is "better" than another.
What I can say with certainty is that Biden's plan is less ambitious than those put forth by the other leading democratic candidates -- and in a good way. It wouldn't be unrealistically expensive to fund this plan, and because it will require most borrowers to make some (albeit lower) payments, it doesn't attempt to simply wipe the slate clean at taxpayers' expense.
Biden's two proposed tax increases would likely also be easier for Americans to get on board with than a wealth tax. So, of the three leading democratic candidates, Biden's could be the easiest student loan plan to implement in the real world.
One potential drawback to Biden's plan is that it doesn't do much to stop the $1.5 trillion in student debt from growing even larger. Aside from supporting expanded Pell Grants and free community college, there's not much reason to believe the student loan debt burden won't continue to grow. In contrast, the plans presented by Sanders and Warren would make all public colleges free, which would likely stop the total student loan debt from getting any higher.
In other words, the focus of the plan seems to be making student loans easier to pay off, rather than addressing the reasons that students need to borrow large amounts of money.
The bottom line is that there's no such thing as a perfect plan to tackle the student loan debt crisis in the United States, but Biden's plan certainly addresses some of borrowers' and students' worst pain points.