Biden administration proposes student loan ‘safety net’

The Biden administration has announced a comprehensive plan that provides a “safety net” for millions of student loan borrowers that includes more affordable repayment terms, amicable monthly interest, and the ability for lower- to middle-income earners to postpone the debt indefinitely.

In a statement released Tuesday, the U.S. Education Department said the “historic” revisions to current law would “transform college financing and reduce future borrowers” by slashing federal loan repayments by $.40 cents on the dollar and significantly reducing the burden on Americans whose income falls below $30,600 a year.

“These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness, so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families,” U.S. Secretary of Education Miguel Cardona said in a draft of the regulations. “We cannot return to the same broken system we had before the pandemic, when a million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed.”

The proposal would raise the poverty threshold for repayments from $24,000 to $30,600, meaning single borrowers could make $6,600 more per year and not incur any federal obligation to repay.

The changes would “substantially reduce monthly debt burdens and lifetime payments, especially for low and middle-income borrowers, community college students, and borrowers who work in public service,” the government said.

The plan seeks to amend the terms of the Revised Pay As You Earn (REPAYE) plan to offer $0 monthly payments for any individual borrower who makes less than roughly $30,600 annually and any borrower in a family of four who makes less than about $62,400, according to the statement.

High earners would see annual savings of at least $1,000 while many borrowers will benefit from having monthly obligations reduced by half — with repayment terms falling from 10% to 5% of total income.

“The regulations would also cut in half monthly payments on undergraduate loans for borrowers who do not otherwise have a $0 payment in this plan,” the plan reads. “The proposed regulations would also ensure that borrowers stop seeing their balances grow due to the accumulation of unpaid interest after making their monthly payments.”

The administration’s latest effort on student loans was announced alongside the debt cancellation plan that President Joe Biden floated last August to help those saddled by decades of student loans.

The administration’s effort to completely wipe away up to $20,000 in loan debt for every borrower, however, is currently in limbo after two Republican-controlled states sued, claiming the move would ultimately leave taxpayers on the hook for the money.

The Supreme Court is set to hear oral arguments in February, with the administration arguing that it is “comfortably” within its authority to cancel debt under the 2003 HEROES Act, which grants federal power to waive laws that usually govern student loans during national emergencies.

The plan proposed Tuesday moves the Education Department away from income-based repayments while also bringing an end to monthly charges for unpaid interest. The plan also includes measures that would fast-track the forgiveness of smaller loans.

Federal student loan repayments have been paused throughout the pandemic, beginning with former President Donald Trump, and continuing after Biden took office and extended the forbearance several times since.

Since Biden took office in 2021, he has come under extreme pressure from Congressional Democrats who want the president to implement more widespread student loan forgiveness through executive action as millions of Americans struggle to make ends meet under rising inflation.

Many piecemeal reforms like those that recently wiped away debt for defrauded or disabled students, and for many who work in public service jobs, have fallen short of benefiting the widest swath of middle-class borrowers.