5 student loan reforms to watch

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Student loan reforms are likely now that Democrats have control of the White House and Congress. Here’s what to look for. (iStock)

Student loan reforms have long been on Democrats’ wish list. And with President Biden taking the Oval Office and his party enjoying a narrow majority in Congress, it’s likely the party will make at least some changes to the current system.

If borrowers want to lower their monthly payments, refinancing may be the way to go. While private student loan borrowers are eligible for student loan refinancing at a lower rate than they are currently paying, refinancing often has no downside. Borrowers can use Credible to compare student loan refinance rates from several private lenders at once without affecting their credit score.

Refinancing, however, is only a potential alternative for those with student loan debt. For borrowers who are currently managing student loans, it’s a good idea to keep an eye out for potential changes. In particular, there are five reforms Democrats can pursue. Here is what they are:

  1. Federal student loan exemption
  2. Private student loan forgiveness
  3. Public Service Loan Delivery Improvements
  4. Reinforced protections for borrowers
  5. Bankruptcy reforms for student loan borrowers

1. Federal student loan exemption

President Biden campaigned on the possibility of forgiving certain student loan debts.

While some progressives have pushed for the administration to write off $ 50,000 in unpaid debt by executive order, the president recently indicated that forgiving such a large amount would require congressional action. He has, however, shown his willingness to write off up to $ 10,000 in federal education debt for borrowers.

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2. Private student loan forgiveness

The private student loan forgiveness is trickier than the federal loan forgiveness because the borrower’s obligation is to a private lender. Yet a Democratic congresswoman last year proposed an amendment to the National Defense Authorization Act that would have provided eligible borrowers up to $ 10,000 to use to repay private loans.

Since this is less likely than the cancellation of federal loans, borrowers with private loans should not count on this help coming. Instead, it may be worth considering refinancing private loans to reduce repayment costs. If you are considering refinancing, be sure to compare student loan refinance rates before you apply, to make sure you find the best deal for you.

3. Improvements to the delivery of civil service loans

Many borrowers who accept public service jobs are denied the public service loan forgiveness. There are many reasons for this, including students choosing the wrong repayment plan.

Two Democratic Senators previously presented a proposal titled “What Can You Do for Your Country” to streamline the application process, allow borrowers to qualify under any repayment plan, and require more education from consumers. borrowers on loan cancellation. If this bill is reintroduced and passed, it may be easier for those who work for nonprofits or for the government to get their loans canceled.

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4. Reinforced protections for borrowers

In 2020, the House and Senate passed bipartisan legislation to overturn rules put in place by the Trump administration that weakened the borrower’s defense against repayment agenda.

This program offers debt relief to students defrauded by their educational institution. Education Secretary Betsy DeVos instituted reforms that have made it more difficult for borrowers to qualify for relief. Congress was trying to reverse the changes, but Trump vetoed the bipartisan legislation.

Now that President Biden is in the White House, it is likely that these reforms will be put in place and misled borrowers will once again have a viable way to write off their debt.

Also, if you are considering refinancing, be sure to compare student loan refinancing rates before you apply, to make sure you find the best deal for you.

5. Bankruptcy Reforms for Student Borrowers

Student loan debt is currently not dischargeable in bankruptcy except in very limited circumstances where borrowers can prove undue hardship.

Some lawmakers have attempted to make it easier to pay off student debt by passing a student loan bankruptcy relief act to remove special rules around student loans. If a bankruptcy reform bill passes, it could open the door for borrowers facing serious financial difficulties to use bankruptcy court to write off their debt.

How to pay off student loans now

While these reforms are possible, there are obstacles. Although Democrats have control of the House and Senate, their majorities are narrow.

And in the Senate, they don’t have enough votes to defeat a Republican obstruction. Unless they get at least 10 Republicans on board, they can’t pass laws unless they do so through a process called reconciliation. Reconciliation can only be used a few times, and there are limits to the types of legislation that can be passed through this process.

Since borrowers cannot count on forgiveness, it is worth considering other alternatives to repay the loans. Refinancing is a good option for those with private loans. A refinance loan could potentially reduce interest rates and monthly payments. Borrowers should use an online student loan calculator to explore the options. However, those with federal loans would probably have to wait, as refinancing would mean giving up borrower protections as well as the possibility of a federal loan forgiveness.

If you have private loans to refinance, visit Credible to view a table of rates from several lenders at once without affecting your credit so you can decide if refinancing is right for you.

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