- [Narrator] Over the past decade,
student loan debt has skyrocketed in the US.
By December 2020, 43 million Americans
owed the government a collective $1.6 trillion.
That's putting pressure on president elect Joe Biden.
- We know that in the 21st century,
12 years of schooling is not enough
and that young people are getting crushed
by the burden of student debt.
- [Narrator] Democrats want Biden
to issue an executive order to forgive some loans
if a bill can't get through Congress,
but opponents say that would unfairly assist
high income earners while increasing the existing burden
on tax payers.
- What's happening is a lot of people
are not sending in payments to the education department.
About 1/3 of the $1.6 trillion that's on the books currently
is not gonna get repaid
which basically means taxpayers
are going to have to cover that somehow.
- [Narrator] So what will Joe Biden do?
First, he wants to bring back a policy
sought by congressional Democrats early in the pandemic.
- The legislation passed by the democratic house
calls for immediate $10,000 forgiveness of student loans.
It should be done immediately
- [Narrator] From there, Biden says he wants to start
by revamping the existing forgiveness options
offered by the Federal government.
- There are these programs in place
called income-based repayment
and the first of these was actually passed
under the Clinton administration.
You know, Bill Clinton actually liked the idea
of having students actually pay a share
of their income each month
rather than a fixed dollar amount.
- [Narrator] One example of these programs is called REPAYE
which stands for revised pay as you earn.
In REPAYE plans, anyone who's struggling
to pay their student loan
can send a new minimum payment that is 10%
of their income over $25,000.
If the borrower makes these payments on time
for 20 to 25 years, the government will forgive
the remaining balance of the loan.
- Now keep in mind,
this is 10% of your discretionary income.
So for some people, it might not make sense
if you're making a lot of money, you know,
and 10% actually might be higher
than what your standard repayment is.
So you kinda have to look at it
and see if it makes sense, but anyone can do this.
You're entitled to enroll in this program.
And a lot of people have,
enrollment in this program has surged.
- [Narrator] But there's a catch, the forgiven balance
of the loan is counted as income on your taxes.
- You know, if you think about it,
that tax bill can actually be really high.
Let's say you owe $100,000
at the end of that 20 year program, well,
that's $100,000 of income.
And so that could be thousands of dollars in a tax bill
that you face right then and there
at the end of your repayment plan.
- [Narrator] Biden's proposal changes this program
in a way that draws less money from borrowers.
The minimum payment rate for these plans would be reduced
from 10% to 5% of a borrower's income
after their first $25,000 earned.
And Biden wants to make it
so that forgiven debt won't be taxed as income.
Biden also wants to sweeten the terms of forgiveness
for public sector, like teachers, military personnel
and also employees of nonprofits.
People in these career fields already have
their debts forgiven,
tax-free after 10 years of public service
but Biden wants to relieve some of their debts
on a shorter timeline.
Biden has said that the current program
isn't working as intended.
- There is a program that exists now
under the law that forgives student loans
for being able to engage in a public service.
I'm gonna institute that fundamental change in that
so it's able to be available to everyone
that in fact is engaged.
It's not being very well managed right now.
So I'm gonna do all of those things.
- [Narrator] Some say that contractors are to blame
for the management issues.
- The contractors that the education department uses
to deal with students who have student loans
have gotten a lot of things wrong.
So what you've seen is there have been a lot of instances
of where people thought that they were on track
to get forgiveness and then they learned that they're not
and they maybe have to start all over.
So this program has turned out to be a mess
and he wants to fix that.
- [Narrator] Members of both political parties
think that the Federal Student Loan Program needs an update.
- One of the big differences right now
is on the democratic side.
They're saying, cancel student debt right now
and then we'll worry about reforming the program.
Republicans are saying, wait a minute.
The first thing we need to do is fix this program
to solve the underlying problems in the first place.
- [Narrator] Any student loan debt that's forgiven
is covered by taxpayers.
Mr. Biden says he'll pay for expanded debt forgiveness
by reversing parts of the tax cuts of 2017.
- For a lot of his plans, he wants to, you know, raise taxes
on higher owners on our corporations, corporate profits.
So more broadly he's talked about doing that.
- [Narrator] Another issue is who exactly benefits
from expanded loan forgiveness programs?
- Most student debt is actually held by people
who are in upper income households.
The Brookings Institution shows that 60% of student debt,
so more than half of the 1.6 trillion on the books
is held by people who are making $74,000 a year or more.
- [Narrator] But if debts are forgiven,
the smaller payouts given to lower income households
are likely to have a bigger impact
on that household's finances.
In recent years, roughly one in five student loan borrowers
fell behind on their payments
according to the Federal Reserve Bank of New York.
That's a sign that many remain at risk of default
on their student loan which could impact their credit
or even lead to garnished wages.
- If you look at the number of people
that have defaulted on their loans,
it's almost the same as the number of people
who lost their homes during the housing crash.
This was almost unheard of, you know,
in the early 2000s that there would be someone
calling for canceling student debt.
So it shows just how much
of a middle-class anxiety this has become
in just the past 10 years.
- [Narrator] And Biden hopes to relieve that anxiety
over the debts in his first term.