Student Loans, Redone – Biden’s New Student Loan Plan
President Biden’s decision to sign an executive order canceling student loans for low-income and middle-class borrowers was extremely polarizing, as is everything. Borrowers were extremely excited about getting a heavy financial weight off their shoulders, but critics had worries about the economic cost of the plan. Regardless, nothing beats the law, and the constitutionality of Biden’s plan was attacked, leading lower courts to block it. It now sits in the Supreme Court, where many are confident that they will not overrule the previous decisions.
As a result, the Biden administration has been forced to move to their backup plans. On Tuesday, they proposed a plan to make it easier on borrowers to pay off their student loan debts through income-based repayment plans. An income-based repayment plan is where a borrower pays money from their income each month to pay off their loans, and the other option is loan forbearance, where your lender allows you to pause or lower your mortgage payments as you build up your finances. Income-based repayment is the best option most times because interest can accumulate during loan forbearance, but as pointed out by satire show Patriot Act, loan servicing companies often turn you to loan forbearance as it’s easier and more cost effective. It’s not to say that income-based plans are perfect, which is exactly why the Biden administration has proposed this plan to reform the system and make it more accessible. They will halve the discretionary income a borrower has to pay each month on their loans with an income-based plan, while not forcing borrower’s 225 percent below the poverty line to make monthly payments. Lastly, it would forgive the loan balance of those enrolled in income-based plans after 10 years of payment, down from 20.
The backlash comes from the fact that it looks like taxpayers will have to take some brunt, and that this plan would be as costly as the previous plan according to the Wharton School of Business. If it can pass any constitutional hurdles, we could possibly see this implemented, but more information needs to come regarding the benefits and harms.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
