(Trends Wide) — A new proposal from the Biden administration would lower federal student loan payments for some Americans, and cut payments altogether for anyone making less than $30,600 a year.
“Today we are making a new promise to borrowers today and to generations to come: Your student loan payments will be affordable,” Education Secretary Miguel Cardona said on a call with reporters Monday night. “They won’t be buried under an avalanche of student interest, or saddled with debt for life.”
By introducing changes to current income-based loan repayment schedules, the government hopes to “transform college funding and reduce future borrowers’ total payments per dollar by $0.40, driving the same time that helps low- and middle-income borrowers,” Assistant Secretary James Kvaal told reporters. The plan would create a “real safety net for student loans,” he added.
Biden first pledged to reform the income-based repayment plan program when he announced his student loan relief plan — which is stuck in court — in August. The Department of Education says this announcement “fulfills President Biden’s commitment to fix the student loan repayment system” and is a “key step in the broader Biden-Harris Administration effort to make higher education more affordable.”
One of the proposed changes would raise the debt payment threshold. Under the proposal, single borrowers making less than $30,600 a year would not have to make any payments, up from the current threshold of $24,000.
This figure is based on the poverty line, according to Kvaal.
Borrowers with higher incomes would also save “at least $1,000 a year” compared to current plans. Under the proposal, payments for college borrowers above that threshold would be cut in half, from 10% of income to 5%, and borrowers with both college and graduate debt would pay “between 5% and 10 % of their income based on a weighted average of their balances,” Kvaal explained.
The Department of Education would also stop charging unpaid monthly interest and shorten the forgiveness period on some smaller loans.
“Under current plans, any remaining balance will be forgiven after 20 years of payments, but we are also offering borrowers with smaller loans a path to 10-year forgiveness,” Kvaal said. “A shortcoming of current IDR (income-based repayment) plans is that all borrowers must have paid off their debt for up to 20 years, even if they only enrolled in college for one or two semesters or borrowed a few thousand dollars. “.
The changes could affect the approximately 8 million people currently enrolled in income-based repayment plans for their federal student loans and could open up the possibility for more borrowers to enroll. “In fact, many more borrowers could get lower monthly payments if they sign up,” Kvaal said.
The plan also includes increased liability for institutions that leave the majority of their students unable to repay their loans.
“It’s time to name these programs and have a frank conversation about the root causes of the unaffordability of student debt,” Kvaal said. “We plan to ask universities with programs on the list to submit an improvement plan, and we are considering regulatory steps to warn students about these programs before they enroll. Over the next 30 days, we will invite the public to comment on the best way to compile this list”.
The Government is seeking feedback with a 30-day public comment period. The final rule could be released later this year, but officials don’t have a specific date on when that will happen.
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(Trends Wide) — A new proposal from the Biden administration would lower federal student loan payments for some Americans, and cut payments altogether for anyone making less than $30,600 a year.
“Today we are making a new promise to borrowers today and to generations to come: Your student loan payments will be affordable,” Education Secretary Miguel Cardona said on a call with reporters Monday night. “They won’t be buried under an avalanche of student interest, or saddled with debt for life.”
By introducing changes to current income-based loan repayment schedules, the government hopes to “transform college funding and reduce future borrowers’ total payments per dollar by $0.40, driving the same time that helps low- and middle-income borrowers,” Assistant Secretary James Kvaal told reporters. The plan would create a “real safety net for student loans,” he added.
Biden first pledged to reform the income-based repayment plan program when he announced his student loan relief plan — which is stuck in court — in August. The Department of Education says this announcement “fulfills President Biden’s commitment to fix the student loan repayment system” and is a “key step in the broader Biden-Harris Administration effort to make higher education more affordable.”
One of the proposed changes would raise the debt payment threshold. Under the proposal, single borrowers making less than $30,600 a year would not have to make any payments, up from the current threshold of $24,000.
This figure is based on the poverty line, according to Kvaal.
Borrowers with higher incomes would also save “at least $1,000 a year” compared to current plans. Under the proposal, payments for college borrowers above that threshold would be cut in half, from 10% of income to 5%, and borrowers with both college and graduate debt would pay “between 5% and 10 % of their income based on a weighted average of their balances,” Kvaal explained.
The Department of Education would also stop charging unpaid monthly interest and shorten the forgiveness period on some smaller loans.
“Under current plans, any remaining balance will be forgiven after 20 years of payments, but we are also offering borrowers with smaller loans a path to 10-year forgiveness,” Kvaal said. “A shortcoming of current IDR (income-based repayment) plans is that all borrowers must have paid off their debt for up to 20 years, even if they only enrolled in college for one or two semesters or borrowed a few thousand dollars. “.
The changes could affect the approximately 8 million people currently enrolled in income-based repayment plans for their federal student loans and could open up the possibility for more borrowers to enroll. “In fact, many more borrowers could get lower monthly payments if they sign up,” Kvaal said.
The plan also includes increased liability for institutions that leave the majority of their students unable to repay their loans.
“It’s time to name these programs and have a frank conversation about the root causes of the unaffordability of student debt,” Kvaal said. “We plan to ask universities with programs on the list to submit an improvement plan, and we are considering regulatory steps to warn students about these programs before they enroll. Over the next 30 days, we will invite the public to comment on the best way to compile this list”.
The Government is seeking feedback with a 30-day public comment period. The final rule could be released later this year, but officials don’t have a specific date on when that will happen.
