Biden Proposes Student Loan Repayment That Could Cut Payments in Half
As life returns to normal following the pandemic many have inquired about student loans and information regarding new regulations regarding repayment.
Regulations have been proposed by the U.S. Department of Education that could reduce the payments for those students who have federal student loans.
The proposal under President Joe Biden’s administration would see the income-driven repayment plans overhauled and capping student loan borrowers' bills at a percentage of their discretionary income known as the Revised Pay As You Earn or REPAYE.
In a statement, U.S. Secretary of Education Miguel Cordona, said, “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 current most affordable option for income-driven repayment plans requires 10% of the borrowers’ discretionary monthly income to be paid toward their student debt. Under REPAYE this would be lowered to 5%.
According to education expert Mark Kantrowitz, the plan should be available by July 1, 2024 however it is possible parts could be available much sooner.
Using the income to base repayment plans for student loan borrowers dates back to the mid-90s as an alternative to standard repayment plans. This gives more flexibility to borrowers’ that spread payments over roughly 10 years or 120 months lowering payments over a longer period with any remaining balance forgiven.
The announcement regarding REPAYE comes during the ongoing discussions regarding the uncertain fate of Biden’s student loan forgiveness plan. The U.S. Supreme will hear oral arguments on the policy at the end of February.
In August it was announced by President Biden that millions of Americans would be eligible to cancel up to $20,000 of their education debt if they received a Pell Grant, which is available aid to low-income families, and up to $10,000 if they did not receive the Pell Grant.
Since that time there have been at least six lawsuits filed to stop the policy due to groups feeling that the president does not have the power to cancel this type of debt without agreement from Congress and that the policy could lead to more harm than good. Two challenges have been successful in a temporary block to the plan by the Biden Administration.
The Biden administration has countered these criticisms by insisting that it is acting within the law, using the Heroes Act of 2003 grants as proof wherein the U.S. Secretary of Education holds the authority to make such changes during national emergencies. Since March 2020 the country has been under a declaration of emergency.
The government has also pointed out that the public health crisis caused by Covid has caused financial harm to borrowers’ making the case that debt cancellation is needed to counteract a historic rise in defaults and delinquencies.