Joe Biden's Plan to Forgive Student Loan Debt Explained

President-elect Joe Biden's plan for student loan forgiveness doesn't go as far as plans touted by some of his former challengers for the Democratic nomination, but it could result in student loans being canceled for millions of people.

Americans collectively hold more than $1.5 trillion in student loans and the financial burden caused people to delay marriages, purchase homes and having children. With some legislators, including Senators Bernie Sanders and Elizabeth Warren, pushing for widespread forgiveness, Biden's election victory sparked hope that relief was on the horizon.

Under Biden's plan listed on his website, his administration would forgive undergraduate loans for people who have "responsibly made payments" for 20 years. Those payments would be 5 percent of a borrower's "discretionary income," defined as "income minus taxes and essential spending like housing and food" over $25,000.

Borrowers would automatically be enrolled in the program but could opt-out if they chose to do so.

Biden's plan also includes forgiving loans for public servants. The new program would offer $10,000 worth of relief for undergraduate and graduate debt for every year of national or community service, up to five years. Five years of prior national or community service also will allow a person to qualify for the program.

joe biden student loan debt forgiveness
President-elect Joe Biden delivers remarks about the U.S. economy during a press briefing at the Queen Theater on Monday in Wilmington, Delaware. Biden's plan as president includes forgiving student loans for millions of people. Joe Raedle/Getty

He also plans to secure passage of the "What You Can Do For Your Country Act of 2019, a bill introduced in the House in May that would forgive 50 percent of loans and interest for certain borrowers working in public service after 60 payments and 100 percent after 120 payments. To be eligible for forgiveness, a person must work at a federal, state, local or tribal government organization, 501(c)(3), law enforcement, in public education, or health or another eligible organization.

Although these are the plans that Biden has listed on his website, it's possible his administration could take student loan forgiveness one step further.

In March, Biden posted on Twitter that a coronavirus relief bill should include forgiveness of at least $10,000 for every federal student loan borrower.

"Young people and other student debt holders bore the brunt of the last crisis. It shouldn't happen again," Biden wrote.

He reiterated the commitment to forgiving $10,000 in student loan debt after winning the election. The majority of Americans support canceling up to $10,000 in student loan debt for each borrower, a Morning Consult poll from August found.

Biden's ability to enact student loan reforms and forgiveness likely depends on the outcome of the Georgia runoff elections in January. If Democrats take both Senate seats, they'll be able to form a majority with Senator Kamala Harris, as vice president, casting the deciding vote in a tie.

If they lose even one of the seats, Republicans will continue to hold a majority in the Senate, creating a potential roadblock in enacting legislation.

With a $10,000 forgiveness program, borrowers with $30,000 of debt would receive about $100 of additional monthly spending over the next 10 years, according to the Urban Institute. A "long tail of payment reductions" would do "little to boost spending," the Urban Institute said, making the "immediate benefits" only modest.

However, total loan forgiveness could boost real GDP by up to $108 billion, William Foster, a vice president with Moody's, told NPR in 2019.

"Student loans are now contributing to what's perceived as lower economic prospects for younger Americans," Foster said.

Biden hasn't publicly released how he will finance forgiveness, but Foster noted that it would mean the federal government would have to give up revenue it's making by collecting on the loans. It could result in a "wider fiscal deficit," and tacking on additional taxes to people could be a "drag on the economy," according to NPR.

Senators Warren, Chuck Schumer, Patty Murray and Sherrod Brown introduced a plan to forgive $10,000 of any federal loan days earlier. Warren, as a presidential candidate, proposed forgiving up to $50,000 in student loans for about 42 million people. She endorsed Biden for president in April.

Months later, in September, Warren urged the next president, regardless of who won the election, to "take executive action to broadly cancel student loan debt" up to $50,000.

Newsweek reached out to the Biden campaign for comment but did not receive a response in time for publication.