US eyes ‘student loan safety net’ alongside forgiving debt
WASHINGTON — The White House is moving forward with a proposal that would lower student debt payments for millions of Americans now and in the future, offering a new route to repay federal loans under more generous terms.
President Joe Biden announced the repayment plan in August, but it was overshadowed by his sweeping plan to slash or eliminate student debt for 40 million Americans. Despite the low profile of the payment plan, however, some education experts see it as a more powerful tool to make college affordable, especially for those with lower incomes.
Education Department officials on Tuesday called the new plan a “student loan safety net” that will prevent borrowers from getting overloaded with debt.
“Student debt has become a dream killer,” Education Secretary Miguel Cardona said. “This is a promise to the American people that, at long last, we will fix a broken system and make student loans affordable.”
Biden, a Democrat, is moving forward with the repayment plan even as his one-time debt cancellation faces an uncertain fate before the Supreme Court. The White House has asked the court to uphold the plan and reject two legal challenges from conservative opponents. The Biden administration submitted its brief last week, with oral arguments scheduled for Feb. 28.
The Education Department formally proposed the new repayment plan on Tuesday by publishing it in the Federal Register, starting a public comment period that often takes months to navigate.
If finalized, the proposal would give an overhaul to income-driven repayment
plans — one of several payment options offered by the federal government. The resulting plan would have lower monthly payments, an easier path to forgiveness and a promise that unpaid interest will not be added to a borrower’s loan balance.
The federal government now offers four types of income-driven plans, but the proposal would mostly phase out three of them.
Under existing plans, monthly payments are capped at 10% of a borrower’s discretionary income, and those earning less than $20,400 a year aren’t required to make payments. The new proposal would cap payments for undergraduate loans at 5% of borrowers’ discretionary pay, cutting their bills in half, and require payments only for those who earn more than about $30,000 a year.
As long as borrowers make their monthly payments, any unpaid interest would not be charged. The change is meant to prevent borrowers from having unpaid interest added to their loan balance, a practice that can cause debt to snowball even as borrowers make payments.
Significantly, the proposal would also make it easier to get debt erased after making several years of payments.
Existing plans promise to cancel any remaining debt after 20 or 25 years of payments. The new plan would erase all remaining debt after 10 years for those who took out $12,000 or less in loans. For every $1,000 borrowed beyond that, a year would be added.
Typical graduates of a four-year university would save about $2,000 a year compared with today’s plans, the Biden administration says, while 85% of community college borrowers would be debt-free within 10 years.
Opponents on the right blasted the revamped plan as an unfair handout with a steep price tag. The Biden administration estimates the repayment plan would cost nearly $138 billion over the decade, and some critics have put it closer to $200 billion.
Republican Rep. Virginia Foxx of North Carolina, chairwoman of the House Committee on Education and the Workforce, said the proposal turns the federal loan program into “an untargeted grant with complete disregard for the taxpayers that fund it.”
Even some on the left have questioned the prudence of the idea, saying it’s so generous that it effectively turns student loans into grants that don’t need to be repaid.