How Do the Different Proposals Compare for Student Loan Forgiveness?

How Do the Different Proposals Compare for Student Loan Forgiveness?

Here’s what you need to know about two major proposals for student loan forgiveness.

Here’s a quick rundown of everything you need to know — and why it matters.

Student Loans

Two major proposals on student loans may influence Biden’s decision whether to provide complete debt relief for more than 40 million student loan borrowers:

  1. Democrats: U.S. Department of Education proposal on student loan forgiveness; and
  2. Republicans: proposal for student loan relief;

The Department of Education’s and Republicans in Congress’ proposals offer contrasting views on the future of student loan forgiveness and debt repayment. While the Republican bill is unlikely to pass, Biden might incorporate parts of it into his student loans plan.

The White House has thrown cold water on the idea of Biden joining the ticket, however, leaks from his Education Department suggest that he was working on a student loan forgiveness plan. In contrast, Republicans proposed significant legislation that might redefine the conversation about student loan forgiveness.

Here are the differences between them.

Student loan forgiveness

Democrats: $10,000 of student loan forgiveness for all federal student loan borrowers

Republicans: no student loan cancellation

For all federal student loan borrowers, the U.S. Department of Education’s proposed bill offers $10,000 in loan forgiveness.

This is for students who took out loans through the Department of Education’s Direct Loans, Parent PLUS Loans, FFELP Loans, Perkins Loans, and GradPLUS Loans. Progressive Democrats in Congress continue to advocate for Biden to cancel $50,000 worth of student loans, but the president has thus far been unwilling to do so.

On the other side, Republicans are opposed to any sort of widespread student loan forgiveness. Republicans argue that significant student loan cancellation is unjust wealth redistribution that benefits high-income people at the expense of Americans without a college education or with no student debt. According to Republicans, Biden has canceled $400 billion in student loans.

Public service loan forgiveness

Democrats: continue the Public Service Loan Forgiveness program

Republicans: end the Public Service Loan Forgiveness program

The Public Service Loan Forgiveness program has long been supported by Democrats. While the program attracted a 99 percent rejection rate among student loan borrowers, Biden is focused on improving student loan forgiveness. Biden introduced a restricted exemption for student loan forgiveness, which allowed borrowers to include previously ineligible student loan payments toward their debt forgiveness requirements.

In contrast, the Republican proposal to eliminate the Public Service Loan Forgiveness initiative was criticized by some as a means of punishing individuals who choose public service. The program provides complete federal loan forgiveness to qualified student loan borrowers. Biden has canceled $8 billion in student loans for public servants since taking office.

Public service loan forgiveness is a costly government program, according to Republicans, who say that public servants may benefit from income-driven repayment alternatives. Students will be able to continue their public service forgiveness programs under the Republican plan.

Student loan repayment

Democrats: simplify student loan repayment

Republicans: simplify student loan repayment

Both Democrats and Republicans want to simplify student loan repayment. Biden has simplified the rules on student loan repayment and has worked to eliminate bureaucracy within the U.S. Department of Education.

Biden has suggested significant changes to student loan servicing, for example.

Both Biden and congressional Republicans want to make income-driven repayment more simple. Currently, there are four different income-driven repayment plans: IBR, PAYE, REPAYE, and ICR. Republicans propose replacing these four student loan repayment plans with a single Income-Based Repayment-style plan for students (IBR).

However, Biden is a supporter of an income-driven repayment plan, even though he postponed his new student loan program.

Student loan interest capitalization

Democrats: eliminate the capitalization of student loan interest

Republicans: eliminate the capitalization of student loan interest

Both Democrats and Republicans agree that the capitalization of student loan interest, which adds accrued student loan interest to your student debt balance, should come to an end.

Borrowers dislike capitalization of interest on their student loans because their student loan balances increase faster, and they must pay interest on their principal and interest balances.

The Biden administration is discussing eliminating the capitalization of student loan interest, while Republicans included it in their legislation.

Student loan payment pause

Democrats: extend the student loan payment pause

Republicans: end the student loan payment pause; restart student loan payments

On August 31, 2022, the loan payment will cease. Sen. Elizabeth Warren (D-MA) and other progressive Democrats have pushed for a seventh extension of the student loan payment moratorium.

Warren has stated that student loan borrowers are unprepared to restart payments, and that more people would default on their loans. While Biden has previously granted student loan forgiveness, he hasn’t addressed the prospect of further extensions.

The Democratic plan would have allowed people to keep their payments at the same amount for 10 months, after which they would be adjusted up or down if necessary. The Republican plan, on the other hand, called for immediately resuming student loan payments and stopping the payment pause. Without any further direction from Biden’s team, student loan borrowers should prepare to lose access to relief and restart federal student loan repayments on September 1.