Student Loan Repayment: Comparison of Major Proposals
Here’s how two major proposals on student loan forgiveness compare.
Here’s what you need to know — and what it means for your student loans.
As President Joe Biden decides whether or not to enact large-scale student loan forgiveness for more than 40 million student borrowers, two major student loan proposals could sway Biden:
- Democrats: US Department of Education proposal on student loan forgiveness; and
- Republicans: proposed student loan relief;
Proposals from the US Department of Education and Republicans in Congress offer competing visions for the future of student loan forgiveness and repayment. While Congress likely won’t pass the Republican plan now, Biden could incorporate elements of the proposed legislation into his student loan plan. Leaked internal documents from Biden’s education department provide a detailed student loan forgiveness proposal pending Biden’s approval. In contrast, Republicans have proposed major legislation that could reshape the student loan forgiveness debate. Here’s how they compare.
Student Loan Forgiveness
Democrats: $10,000 student loan forgiveness for all federal student loan borrowers
Republicans: no student loan cancellation
The US Department of Education’s draft proposal recommends $10,000 in student loan forgiveness for all federal borrowers. This includes student borrowers with Direct Loans, Parent PLUS Loans, FFELP Loans, Perkins Loans, and Grad PLUS Loans. Progressive Democrats in Congress still want Biden to forgive $50,000 in student loans, but the president has been reluctant to do so. In contrast, Republicans do not want large-scale student loan forgiveness. Republicans say widespread student loan forgiveness is an unfair redistribution of wealth that disproportionately benefits high-income earners at the expense of Americans who haven’t attended college or don’t have a student loan. Republicans also claim Biden forgave $400 billion in student loans.
Forgiveness of public service debt
Democrats: continue the civil service loan cancellation program
Republicans: end the civil service loan cancellation program
Democrats have long backed the civil service loan forgiveness program. While the program has seen a 99% rejection rate among student loan borrowers, Biden is focused on fixing student loan forgiveness. For example, Biden introduced a limited waiver for student loan forgiveness, which allowed borrowers to count previously ineligible student loan payments toward student loan forgiveness requirements. In contrast, Republicans in Congress have proposed eliminating the Civil Service Loan Forgiveness Program, which grants full federal student loan forgiveness to eligible borrowers. Since becoming president, Biden has forgiven $8 billion in student loans for public servants. Republicans say civil service loan forgiveness is another costly government program and that civil servants can get student loan forgiveness through income-tested repayment plans. Under the Republican proposal, student borrowers who apply for a civil service discount before July 2023 will be allowed to continue the program.
Student loan repayment
Democrats: simplify student loan repayment
Republicans: simplify student loan repayment
Democrats and Republicans want to simplify student loan repayment. Biden simplified student loan repayment rules and worked to eliminate bureaucracy in the US Department of Education. For example, Biden proposed major changes to the student loan service. Biden and congressional Republicans want to simplify reimbursement based on income. Currently, there are four income-based repayment plans: IBR, PAYE, REPAYE, and ICR. Republicans want to replace those four income-based repayment plans with a single student loan repayment plan similar to income-based repayment (IBR). Biden also backs a one-time, income-driven repayment plan, though he recently delayed his new student loan plan.
Capitalization of Student Loan Interest
Democrats: eliminate interest capitalization on student loans
Republicans: eliminate interest capitalization on student loans
Democrats and Republicans agree that student loan interest capitalization — which adds accrued student loan interest to your student loan balance — should end. Borrowers don’t like interest capitalization on student loans because their student loan balances grow faster and borrowers pay interest on their principal and interest balance. The Biden administration is considering eliminating interest capitalization on student loans, while Republicans referenced the provision in their bill.
Suspension of student loan payment
Democrats: extend student loan payment break
Republicans: ending the student loan payment pause; boost student loan repayments
Student loan payments will end on August 31, 2022. Progressive Democrats such as Sen. Elizabeth Warren (D-MA) have urged the president to extend the student loan payment break for the seventh time. Warren argued that student borrowers are not ready to restart student loan repayments and that more borrowers will not repay their student loans. Although Biden previously extended student loan relief, Biden did not comment on the prospect of further extensions. In contrast, Republicans have proposed ending the student loan payment pause and immediately restarting student loan payments. Without further guidance from the Biden administration, student borrowers should prepare for the end of student loan relief and the restart of federal student loan payments on September 1. Here are some of the most popular ways to pay off student loans and save money: