Biden administration rewrites student loan safety net as debt cancellation falters in court
Jeremiah Poff
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The U.S. Department of Education unveiled a new regulatory proposal Tuesday that makes significant changes to a federal program designed to accommodate the financial situations of student loan borrowers with low incomes.
The proposed regulations, which now enter a 30-day period of public comment, modify the rules governing the Federal Student Aid office’s income-driven repayment program. Under the proposal, borrowers with an annual income of less than $30,600 will not have to make any monthly payments.
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For all other borrowers on an income-driven repayment plan, the new regulations would reduce their monthly payments from 10% of their monthly income above the poverty line to 5%. The regulation would also prevent the excess accumulation of unpaid interest so borrowers on income-driven repayment plans would no longer see their balances increase even as they continue to make monthly payments.
“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. “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. 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.”
Under the current rules, borrowers on an income-driven repayment plan can ultimately see their balance forgiven after 20-25 years of consistent payments. The new proposal lowers the forgiveness threshold to 10 years for individuals who borrowed $12,000 or less, while every additional $1,000 borrowed adds one month to the limit before the loan is forgiven.
The proposed regulations are the latest effort by the Biden administration to make changes to the federal student loan system. In August, the administration announced it would forgive $20,000 in student loans for borrowers making less than $125,000 and had received a Pell grant. Borrowers who did not receive a Pell grant but did not surpass the income threshold were eligible for $10,000 in forgiveness.
But legal challenges have put the forgiveness plan on hold. The U.S. Supreme Court is slated to hear oral arguments for and against the program next month. A decision is expected sometime in June.
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Rep. Virginia Foxx (R-NC), the chairwoman of the House Education and Workforce committee, blasted the new proposal in a statement, calling it “a repeat of the same playbook that got us into this college affordability crisis in the first place.”
“Expansions of already generous repayment options, institutional shame lists, and other failed policies of the past won’t lower the cost of college for students and families. It does, however, turn the federal loan program into an untargeted grant with complete disregard for the taxpayers that fund it,” Foxx said. “Without real, comprehensive reform to our postsecondary financing and accountability systems, we will be left with ineffective and expensive policies by an administration dead set on bankrupting our country.”