Biden’s Huge Plan for Student Loan Cancellation and Forgiveness

President Joe Biden's plan to cancel $10,000 to $20,000 of federal student loan debt for millions of borrowers was struck down by the Supreme Court. However, he has continued to push through other significant student loan initiatives, such as the PSLF Waiver, IDR Waiver and the new SAVE plan.

And now, the Biden administration is moving forward with “Plan B” student loan forgiveness to try and cancel debt through the Higher Education Act.

We'll cover what President Biden is planning to do with student loans in 2024 and beyond.

The key parts of the Biden student loan plan

Biden's plan for student loans during his first term can be broken down into five parts:

1. Cancellation of $10,000 to $20,000 (blocked)
2. A new income-driven repayment plan that will lower payments for most borrowers (implemented)
3. A pause on monthly payments and interest (ended)
4. A PSLF Waiver and IDR Waiver that will grant far more credit to borrowers seeking student loan forgiveness (implemented)
5. Increased scrutiny on schools' costs, particularly for profit schools (implemented)
6. “Plan B” student loan forgiveness (pending)

It's clear that President Biden's plan for student loans is more aggressive and bolder than most anyone anticipated. We'll go into greater detail on each plank of the Biden student loan plan below.

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1. Broad student loan cancellation

The administration planned to cancel up to $10,000 of student debt for all households earning less than $125,000 individually or $250,000 as a married couple. Pell Grant recipients, which represent about 60% of all federal student loan borrowers, would have received up to $20,000 of cancellation.

Over 16 million people had already been “approved” for cancellation, but the Supreme Court blocked the plan.

Currently, the administration is trying to figure out how to cancel debt through the Higher Education Act.

2. A new Biden IDR plan (income-driven repayment)

A new income-driven repayment plan called Saving on a Valuable Education (SAVE) will allow undergrads to pay 5% of their income, down from 10% currently. It will also provide faster debt forgiveness to borrowers with balances below $12,000, and negative interest accrual will essentially end.

The White House, Congress and many student loan advocates have called for simplification of the income-driven repayment plans.

We have yet to see if this new IDR plan will accomplish this, but it's extremely aggressive in its generosity to borrowers.

According to the initial press release, borrowers with both graduate and undergraduate debt would pay “a weighted average rate.”

It suggests the following:

1. Borrowers with graduate student loans WILL meet eligibility requirements for the new IDR plan.
2. If you have 50% undergraduate debt and 50% graduate debt, your IDR payment percentage would be 7.5%. If you had 80% undergraduate debt, your IDR payment percentage would be 6%. If you have 90% graduate debt, your payment percentage would be 9.5%.

The federal poverty line for most IDR plans is currently 150%. This Biden SAVE IDR plan would allow borrowers to pay $0 on income up to 225% of the federal poverty line. This won't be a game changer for higher-income borrowers, but it might result in lower federal student loan payments and savings in the $100 to $200 a month range for many.

Extra relief for graduate borrowers in the Biden SAVE IDR plan

Graduate school borrowers could see far more relief under this Biden IDR plan than undergraduate borrowers despite not seeing as much payment relief.

The reason? Interest will no longer accrue if your required IDR payment is less than the interest owed.

How would this work in practice?

Imagine a lawyer owes $200,000 from law school and must pay $500 a month under her IDR plan. She would not see her balance grow.

In contrast, if that borrower was a 4th-year Big Law associate and her IDR payment was $2,500 a month, her payment would fully cover her interest, so there would be no subsidy.

So essentially, this new plan would be the REPAYE plan on steroids (REPAYE subsidizes 50% of all unpaid interest).

And because undergraduate borrowers might owe $30,000 while a graduate school borrower might owe many multiples of that, the graduate school borrower will receive more in interest subsidies than the payment benefit the undergraduate borrower receives.

That said, if the grad school borrower is pursuing forgiveness, the interest subsidy doesn’t really matter as the remaining balance is forgiven anyway.

3. The final extension of the student loan payment pause

Remember the story “The Boy Who Cried Wolf”? President Biden said that January 31, 2022, would be the final extension of the student loan pause, only to go back on that after pressure from the Democratic Congressional delegation when the Build Back Better Act did not pass.

The President stated in his August 24, 2022 announcement emphatically that the student loan pause would finally end December 31, 2022. Then he backtracked again.

The final extension of the student loan pause can only be trusted as the final pause because of a bill passed by Congress that forces the pause to end. Borrowers started accruing interest again September 1, 2023.

4. Expansion of IDR forgiveness and Public Service Loan Forgiveness

The IDR Waiver and Public Service Loan Forgiveness program Waiver are game changing for borrowers who have been in student loan repayment for many years. While the PSLF Waiver has technically expired, it's functionally available through the the IDR waiver until June 30, 2024.

Under these two programs, the administration will count most types of payments, forbearances, and deferments towards the 10, 20, and 25 year repayment periods needed to receive total forgiveness under PSLF and IDR respectively.

The PSLF Waiver and IDR Waiver combined could result in hundreds of billions of cancelled loans.

The PSLF waiver is far broader than this, and it’s incredibly disappointing that only $40 billion has been canceled out of an estimated $140 billion+.

5. Holding schools accountable

This plan is the least aggressive in the Biden plan for student loans. The Education Department will publish a watch list of schools with the worst debt outcomes in the country.

They will also require certain schools to adhere to institutional improvement plans.

This does little to fix the student loan problem. Most schools with bad outcomes are for profit, but most schools with the largest debt to income ratios are actually graduate and professional schools with good employment outcomes.

A Barber Institute that charges $10,000 but can't place students into jobs can be a bad return on taxpayer dollars just as a dental school in New York can be that charges $600,000 for a degree where students earn $120,000 after graduation. Yet the administration is seemingly doing little to fix these problems.

While these accountability measures are a welcome improvement, our expectation is that they would be targeted at for-profit schools that are mostly on the way to shutting down anyway, without much scrutiny brought to nonprofit universities, which are also big contributors to the student loan crisis.

Sweet v. Cardona did bring some measure of relief to borrowers who attended for-profit schools. But this effort was mild in comparison to other student loan initiatives.

6. Trying for “Plan B” student loan forgiveness

President Biden's “Plan B” student loan forgiveness plan uses a different statutory authority than his original mass cancellation plan that was struck down in June 2023. This new plan will provide targeted student debt relief to specific groups of borrowers in hopes that the narrowed scope of relief will pan out legally.

This new forgiveness initiative is still in its development stage. Final regulations are expected in May 2024, followed by a period of public comment. That said, it can't go into effect until July 2025. So, implementation will also depend on who wins the 2024 presidential election.

Legal authority of student loan cancellation

The Department of Justice (DOJ) and the Department of Education both evaluated the authority of the President to cancel student debt, and both found that he could. DOJ produced a 25 page report.

The Department of Education further found that President Trump’s Education Department was incorrect in saying that the President could not cancel student debt.

Many lawyers on social media raise the point that no one has standing to challenge this decision.

The Supreme Court disagreed and blocked the cancellation plan. Missouri could also sue on behalf of MOHELA again to block cancellation through Biden's plan B through the Higher Education Act.

Could a lawsuit block student debt cancellation or the New IDR Plan?

One part of the Biden student loan plan that is much safer is his new IDR plan. A court would be unlikely to overturn or block any of the IDR plan changes the administration is making since they went through the normal negotiated rule-making process.

However, the president's political opponents could seek to challenge the new IDR plan in court, arguing it's not really a repayment plan but a forgiveness plan. We'll have to stay tuned to see.

What happens if Biden loses the 2024 presidential election?

If President Biden loses the election, the new SAVE plan could be replaced with an income-driven repayment plan that Republicans are more aligned with. In which case, Trump would likely issue an executive action overturning SAVE by July 2026 or July 2027. He wouldn't be able to nix the SAVE plan immediately because of how the regulatory calendar works.

What's next for student loans if President Biden wins re-election?

If President Biden wins a second term, there will likely be more in store for student loans on a large scale. If Democrats are able to perform a clean sweep and win Congress and the White House, we might be looking at big changes, such as:

• Extending tax-free treatment of student loan forgiveness permanently.
• Additional rulemaking to push through more student loan forgiveness for more borrowers.
• Aggressively canceling student debt through “Plan B” forgiveness.

However, if Republicans are able to control one of the two chambers of Congress, we'll likely see aspects of student loans (e.g., expiring tax-free forgiveness provision) being used to negotiate for GOP-led initiatives.

How to get the most forgiven under Biden’s student loan relief plan

Make sure your contact information is updated with your student loan servicer and agree to text message updates if possible. Check your email regularly and call your servicer if you receive an email to make sure the email is legitimate.

Biden’s New IDR plan will be partially available on July 30, 2023. The undergraduate 5% of income provision won't be available until July 2024. We will come out with a lot of updates on this new plan, so if you’re not already, make sure to subscribe to our weekly update.

Borrowers who planned to pay off their loans and refinance before March 2020 would likely want to apply in late 2023 once student loan interest has actually started again.

And finally, if you want expert help from one of our CFP®, CFA, and CSLP® student loan consultants to take advantage of the limited time IDR Waiver, book an hour consult with the link below. For professionals with six figures of student debt, we could very likely find savings that equate to multiples of our consult fee.

What do you think of Biden’s student loan plan? Let us know in the comments.