Student loans can provide a pathway to fund education costs. As a borrower, it’s important to understand how your loans work.
Federal student loan policies establish guidelines for interest capitalization, loan forgiveness, and more. We’ve seen those policies subjected to increasing scrutiny as the national student loan burden has ballooned to more than $1.7 trillion. As a result, the government is taking steps to address some of the most pervasive issues within the federal student loan system.
Here’s a closer look at what’s changed with regard to student loans in recent years and what may be on deck for borrowers in the future.
In this guide:
- U.S. student loan policies
- President Joe Biden’s student loan policies
- New U.S. student loan proposals
U.S. student loan policies
The federal student loan program dates back to the 1950s, when the passage of the National Defense Education Act of 1958 allowed the government to make direct loans capitalized with U.S. Treasury funds.
Federal loans have undergone numerous changes since, with one of the most notable shifts being a move from guaranteed loans to direct lending.
Despite the changes, certain student loan policies have persisted. These include the following:
- No statute of limitations. The statute of limitations on student loans specifies how long a lender has to sue a borrower for unpaid balances. However, that applies to private loans; there is no statute of limitations on federal student loan debt.
- Deferments. Student loan deferment allows you to temporarily pause payments to your loans. Interest does not accrue on Subsidized loans. The federal government allows deferments for various reasons, including for borrowers who are seeking cancer treatment.
- Forbearance. Forbearance also allows you to pause payments on your loans or make a smaller payment. The federal government offers general forbearance and mandatory forbearance for eligible borrowers.
- Income-driven repayment. In addition to standard, extended, and graduated payment options, student loan policies also include provisions for income-driven repayment. These payment plans allow borrowers to tailor their monthly loan payments to their financial situation, with the opportunity for loan forgiveness.
- Loan forgiveness, cancellation, and discharge. Loan forgiveness programs allow you an opportunity to have some of your education debt forgiven. The government has several loan forgiveness programs, including Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness, as well as options to cancel or discharge your loans in certain situations.
The federal government also affords borrowers an opportunity to file complaints about their loans through two ombudsman groups: the Federal Student Aid Ombudsman Group and the Consumer Financial Protection Bureau Student Loan Ombudsman Group.
President Joe Biden’s student loan policies
The Biden administration has introduced several updates to student loan policies in an effort to make managing and repaying education debt more manageable for borrowers. Several policy updates were initially floated during the president’s election campaign, while others arose in reaction to the COVID-19 pandemic.
Student loan forbearance
In March 2020, the Department of Education announced it would put federal student loans into forbearance and set all student loan interest rates at 0%. The Biden administration has extended this temporary measure several times, most recently in November 2022.
The latest extension is expected to run through June 30, 2023, as the executive branch sorts through legal challenges to student debt relief efforts. If litigation surrounding the administration’s debt relief measures is not resolved by that date, payments will resume 60 days after.
Student loan forgiveness
President Biden has also taken steps to enhance student loan forgiveness programs for eligible borrowers. For example, a temporary change allowed borrowers seeking public service loan forgiveness to get credit for past payments that would otherwise not have counted. The window to take advantage of that change closed on October 31, 2022.
The administration also instituted an effort to forgive up to $20,000 in student loan debt for eligible borrowers with loans that originated before June 30, 2022. Legal challenges have blocked that effort for the time being, with the Supreme Court set to hear arguments in the case in February 2023.
Student loan discharge
Biden administration student loan policies made it easier for certain borrowers to have their education debt discharged. The Education Department approved the discharge of $3.9 billion in student loans for students who attended the now-defunct ITT Technical Institute.
Discharges were also approved for students who attended Corinthian College, DeVry University, Westwood College, and certain Kaplan Career Institute borrowers. A discharge means you’re no longer required to make any payment toward your student loans.
Student loan discharge for people with disabilities
Over 323,000 borrowers with total and permanent disabilities became eligible to have their student loans discharged, thanks to a Biden student loan policy change. The Education Department indefinitely extended a policy announced in March 2022, which was designed to halt the reinstatement of loans when borrowers are unable to provide income information.
The Department of Education is also set to eliminate the three-year monitoring period that’s required under current regulations. During this period, borrowers with disabilities may have their loans reinstated if their income exceeds certain levels.
How do President Biden’s student loan policies differ from previous administrations?
President Biden’s stance on student loans has notable differences from previous administrations’ policies.
They reflect some of the initiatives touted by lawmakers, including Senator Bernie Sanders, who has long advocated for making student loans more affordable.
How do Donald Trump’s student loan policies compare to Biden’s?
Former President Donald Trump’s student loan plan largely centered on two issues:
- Creating tax breaks for colleges and universities to reduce the cost of college and student loan debt
- Making it easier for students to attend two-year, four-year, and technical schools
In terms of the student loan policies implemented during Trump’s presidency, he was responsible for the COVID-19 forbearance that began in March 2020.
Trump pushed through the Tax Cuts and Jobs Act of 2017, which eliminated taxability of student debt discharged due to death or total and permanent disability. However, the act also removed the tuition and fees deduction, costing some borrowers tax savings.
Biden’s student loan policies have been more aggressive than Trump’s, particularly the efforts to have loans forgiven for eligible borrowers. It’s also worth noting Trump called for the elimination of PSLF, certain income-driven repayment plans, and subsidized loans during his tenure as president.
How do Barack Obama’s student loan policies compare to Biden’s?
As president, Barack Obama instituted several changes to student loan policies with the goal of reducing debt burdens for borrowers. Many of those changes were included in the Health Care and Education Reconciliation Act.
Under the act:
- Income-driven repayment plans limited payments to 10% of income.
- Forgiveness became available after 20 years, rather than 25.
- Direct loans replaced loans from government-subsidized private banks.
- Pell Grant awards increased.
- More funding was allocated to community colleges and schools serving minority and low-income students.
Overall, Obama’s student loan policies made it easier to access loans, while removing some of the financial strain for lower-income borrowers. However, critics of the measures suggested it would prove costly for the federal government over the long term.
Many borrowers see the policies of Biden—who was vice president under Obama—as a more generous extension of what Obama started.
New U.S. student loan proposals
The effort to reform student loan policies is ongoing as lawmakers seek to address persistent issues.
For example, there are ongoing concerns about student loan redisclosure practices and how they affect borrowers. Redisclosure allows lenders to reset student loan payment schedules, which may cost borrowers more in the long run.
Being aware of what may lie ahead is important for managing your current debt and any new loans you might take out.
Student loan interest capitalization
New federal regulations will change the way interest is capitalized on federal student loans in certain situations. Specifically, interest capitalization will be eliminated for borrowers in situations including:
- When a borrower first begins repayment
- When a borrower leaves forbearance
- When a borrower leaves certain income-driven repayment plans, including Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE)
The move is intended to save borrowers money by limiting when interest can compound on loan balances.
Expanded student loan forgiveness
New regulations will expand access to student loan forgiveness for students with Borrower Defense to Repayment claims.
Student loan policies will allow for a broader range of school misconduct to be considered when a borrower files a claim. Borrowers with total and permanent disabilities will also find it easier to qualify for discharge of their loans if they receive Social Security benefits.
The Biden administration is working on making positive changes to income-driven repayment plans by proposing a rule that would:
- Require borrowers to pay no more than 5% of their discretionary income to monthly payments on undergraduate loans.
- Raise the amount of income considered non-discretionary, which guarantees no borrower earning under 225% of the federal poverty level will have to make a monthly payment.
- Forgive loan balances after 10 years of payments for borrowers with balances of $12,000 or less.
- Cover the borrower’s unpaid monthly interest to prevent loan balances from growing, even if the borrower’s monthly payment is $0.
You can keep track of updates to student loan policies by signing up to receive email updates from the Department of Education.