As a presidential candidate, Joe Biden campaigned on canceling $10,000 worth of student loan debt per borrower. But more than a year into his term, President Biden hasn't yet found a way to deliver on his campaign promise.
Prominent Democrats have been calling on Biden to cancel student debt via executive order "with the flick of a pen," although not all legal experts agree that the president has the legal authority to enact debt forgiveness. Biden himself has previously indicated that he wants Congress to enact this type of legislation. However, existing bills aimed at student debt cancellation haven't gained enough support among moderates in the House and Senate.
Now, one analyst has proposed an alternative way for the Biden administration to enact broad student debt forgiveness.
Student loan expert Mark Kantrowitz said in a recent blog post that Education Secretary Miguel Cardona has the regulatory authority to change the rules of an existing federal program, income-contingent repayment (ICR), to effectively cancel student debt for millions of borrowers.
"This regulatory authority is so broad that the U.S. Department of Education could use the rulemaking process to issue new regulations that transform ICR into a new student loan forgiveness program," Kantrowitz said.
Keep reading to learn more about this new proposal to discharge student loan debt through ICR. And if you have private student loans that don't qualify for forgiveness, it may be possible to reduce your monthly payments and pay off debt faster by refinancing to a lower interest rate. You can visit Credible to compare student loan refinance rates for free without impacting your credit score.
How Biden could use ICR to implement widespread student loan forgiveness
Income-contingent repayment (ICR) is one of four of income-driven repayment plans offered by the Department of Education. Under an ICR plan, eligible borrowers can limit their federal student loan payments to 20% of their discretionary income. After making payments for 25 years, a borrower's remaining loan balance is forgiven.
The Education Department has the legal authority to amend the ICR program rules to move borrowers closer to achieving forgiveness, Kantrowitz argues. In fact, the Biden administration already did this once when it temporarily amended the Public Service Loan Forgiveness program (PSLF), making it easier for public servants to qualify for debt cancellation.
Kantrowitz said the Education Department may be able to:
- Shorten the 25-year repayment period. The department could forgive a student loan borrower's remaining balance after making payments for 15 years or 10 years, for example. Per current regulations, though, the repayment term can't be less than five years.
- Count periods during which the borrower was not enrolled in an ICR plan. This would include qualifying payments made on a standard repayment plan and under the Federal Family Education Loan (FFEL) program, as well as periods of economic hardship deferment.
- Provide a full student loan discharge to underprivileged borrowers who meet certain income thresholds based on the poverty line. This could also prevent wealthy borrowers from qualifying for full student loan forgiveness.
While other proposals to cancel student debt through an executive order would likely face lawsuits, Kantrowitz said that amending ICR is "more likely to survive legal challenges."
It's important to note that this student debt forgiveness proposal would only be available to federal student loan borrowers. Those who have private student loan debt may want to consider their alternative repayment options, such as refinancing. You can learn more about student loan refinancing by getting in touch with a knowledgeable loan officer at Credible.
What to do if you don't qualify for student debt forgiveness
The Education Department has canceled about $16 billion worth of student loan debt since Biden took office for more than 680,000 Americans who qualified for programs like PSLF, borrower defense to repayment and closed school discharges.
However, the vast majority of borrowers have not yet received the broad student loan forgiveness Biden promised on the campaign trail. Plus, about 2.4 million borrowers with private student loans wouldn't benefit from widespread debt cancellation measures.
If you haven't benefited from federal student loan forgiveness, you may consider these alternative debt repayment strategies:
- Enroll in an income-driven repayment plan (IDR). Federal loan borrowers may be able to limit their monthly payments to between 10% and 20% of their disposable income. Federal Student Aid (FSA) recommends that you get in touch with your student loan servicer to sign up for an IDR plan.
- Seek employer-sponsored student debt relief. Nearly a third of large companies plan to offer some form of student loan assistance in the near future, recent research shows. And several prominent employers like Google, Honeywell and SoFi already offer student loan repayment assistance.
- Refinance your student loans at a lower rate. Student loan refinancing may be able to help some borrowers reduce their monthly payments, get out of debt faster and save money on interest charges over time. A recent Credible analysis found that borrowers who refinanced to a longer-term private student loan saved more than $250 per month, on average.
Keep in mind that refinancing your federal student loan debt into a private loan would make you ineligible for IDR plans and select federal student loan forgiveness programs. But if you don't plan on utilizing these benefits — or if you already have private student loans that aren't eligible for federal protections — then you may benefit from refinancing to a lower interest rate.
You can compare student loan refinance rates from private lenders in the table below. Then, you can use Credible's student loan calculator to determine if refinancing is the right strategy for your financial situation.
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