The Biden administration on Tuesday released details of a plan to make it easier for student-loan holders to erase debts by using income-driven repayment plans.
The plan was first announced in August when President Joe Biden announced his plan to eliminate up to $20,000 in qualified student loan debt. On Tuesday, the administration released its regulatory notice that gave more details on the plans.
“Today the Biden-Harris administration is proposing historic changes that would make student loan repayment more affordable and manageable than ever before,” Secretary of Education Miguel Cardona said in a statement.
“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.”
If enacted, the proposed changes would leave those who qualify for the program debt-free sooner, while having to pay off only a fraction of their total loan balances.
Republican Rep. Virginia Foxx, 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.”
“Because President Biden couldn’t get his radical free college agenda through Congress, he has resorted to doing it through the backdoor by executive fiat,” Foxx said in a statement.
Biden announced the loan forgiveness program in August saying it would allow up to 40 million borrowers to receive $10,000 of student loan forgiveness for those making less than $125,000 a year, or households making less than $250,000.
Pell Grant recipients will be eligible for an additional $10,000 in debt forgiveness.
The proposed rule must go through a 30-day public comment period. At the end of the 30 days, the department can release a final rule.
Here are some key highlights of the proposed plan released Tuesday:
- The administration plans to cut in half the amount of discretionary income borrowers enrolled in the income-driven plan must pay each month toward their undergraduate student loans. Borrowers are currently paying 10% toward the loans.
- Borrowers with annual incomes lower than 30,600, would not have to make monthly payments on their loans if the plan is put into place.
- The same goes for any borrower in a family of four who makes less than $62,400 a year.
- A borrower’s loan balance won’t grow as long as they make their monthly payments. That includes borrowers whose monthly requirement is set at $0. Unpaid interest will not be charged.
- Loan balances will be forgiven after 10 years of payments for those enrolled in income-based plans. Loans are forgiven now after 20 years of payments for most borrowers whose original loan balances were $12,000 or less.
According to the DOE, 85% of community college borrowers would be debt free within 10 years of entering the repayment program.
Biden’s plan to forgive debt to those with federally backed student loans met with a slew of lawsuits.
Last month, the U.S. Supreme Court agreed to hear arguments about the proposed plan.
No applications for loans have been approved since October when rulings in two lawsuits against the DOE over the program halted the processing of applications.
Biden announced that he would be extending the pause on paying back federally funded student loan debts until 60 days after the administration is allowed to implement its student loan forgiveness plan and litigation is resolved.
If it can’t proceed with its policy and the legal challenges are still unfolding by June 30, 2023, student loan payments will restart 60 days after that.