On Tuesday, the Biden Administration announced efforts to make student loan repayments easier through income-driven plans. The new detailed plans are being called a vital step in addressing the nation’s $1.6 trillion federal loan debt.
“We are, for the first time, creating a student-loan safety net in this country,” Education Department Undersecretary James Kvaal said in a statement.
The Education Department’s proposed regulation changes were first shared in August when President Biden announced he would be canceling up to $20,000 in student debt for qualifying borrowers, which is currently awaiting a ruling from the Supreme Court.
However, the plan to revamp current income-based repayment plans wouldn’t wipe out all debt. Instead it would look to address several issues, including technical problems, mass amounts of paperwork required to use the system, and how much borrowers have to pay every month, according to a press release from the department.
According to the Education Department, if the proposal is enacted, qualifying borrowers would be offered more-generous options to help them become debt-free sooner. This would include borrowers only paying for a fraction of their current loan balances.
As rules currently stand, borrowers are required to pay 10% of their discretionary income towards their undergraduate student loans each month. Through the changes, the administration would drop that percentage for those enrolled in an income-driven repayment plan to 5%.
The proposed regulations would also drop the requirement to make monthly payments for anyone whose income is below 225% of the federal poverty line. According to estimates from the administration, this would mean an individual would have to make less than around $30,600 annually or be in a family of four who makes less than $62,400 a year.
For many borrowers, loan balances continue to balloon whether or not they make their monthly payments. This would also change, as balances would stand still, being that monthly payments are made. This would even be the case for low-income borrower’s with payments set at $0.
Lastly, the proposal would see loan balances, initially $12,000 or less, forgiven after borrowers who are enrolled in the income-based plans have made payments for 10 years. Currently, that time frame is set at 20 years.
“We are, for the first time, creating a student-loan safety net in this country,” Education Department Undersecretary James Kvaal said in a statement.
The newly proposed regulations must go through a 30-day public comment period. After that, the department can release a final rule.
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