ABOUT BIDEN’S STUDENT LOAN REFORMS

Amid the stir caused by President Joe Biden’s plan to cancel student loan debts, far too little attention has been paid to another far-reaching reform: the administration’s change to a lending program known as income-driven repayment (or IDR). If widely applied, Biden’s proposal would provide additional relief to millions of borrowers — and make the U.S. student loan system even costlier and more dysfunctional than it already is.

Unlike in standard 10-year loans, in which payments are fixed, borrowers in income-driven plans pay a percentage of their earnings each month, plus interest on the principal. The terms of such plans have become more generous since they were introduced in the 1990s. Current students who enroll in IDR pay 10% of their earnings above 150% of the poverty line and have their outstanding balances forgiven after 20 years …

Under the Biden plan, borrowers would pay 5% of their income each month, and only on earnings above 225% of the federal poverty line. Students who take out loans of $12,000 or less would have all outstanding balances forgiven after 10 years …

The government should make enrollment in existing

IDR plans simpler for lower-earning students, while also expanding targeted aid through federal Pell grants, which would limit the amount that poor students have to borrow in the first place. Meanwhile, high earners should be required to pay a larger share of their incomes and receive less in loan forgiveness …

Reducing the cost of a postsecondary education, particularly for poorer students, is a goal worth pursuing. This plan is the wrong way to go about it.