(Headline USA) Despite legal setbacks to its student-loan amnesty plan, the White House said it was moving forward with a proposal that it claimed would lower student debt payments for millions of Americans now and in the future, offering a new route to repay federal loans under far more generous terms.
That, in turn, would inevitably reduce the revenue that the government receives from the public lending program, while still failing to address the root cause of profligate spending and tuition hikes at universities that increasingly offer less value and return on the investment.
President Joe Biden announced the repayment plan in August, but it was overshadowed by his controversial plan to transfer student debt for 40 million Americans onto the backs of taxpayers at large.
Education Department officials on Tuesday called the new plan a “student loan safety net” that will prevent borrowers from getting overloaded with debt.
“Student debt has become a dream killer,” Education Secretary Miguel Cardona said. “This is a promise to the American people that, at long last, we will fix a broken system and make student loans affordable.”
Biden is moving forward with the repayment plan even as his one-time debt cancellation faces an uncertain fate before the Supreme Court.
The White House has asked the court to reject two legal challenges from conservative opponents who contend that he had no such authority under the U.S. Constitution to cancel public debt and that the program harms those who either paid their loans in good faith or never had them to begin with.
The Biden administration submitted its brief last week, with oral arguments slated for Feb. 28.
The Education Department formally proposed the new repayment plan on Tuesday by publishing it in the Federal Register, starting a public comment period that often takes months to navigate.
If it’s finalized, the proposal would give a major overhaul to income-driven repayment plans—one of several payment options offered by the federal government.
The resulting plan would have lower monthly payments, an easier path to forgiveness and a promise that unpaid interest will not be added to a borrower’s loan balance.
The federal government now offers four types of income-driven plans, but the proposal would mostly phase out three of them while focusing on one simplified option, scaling back the confusing array of options borrowers now face.
Under existing plans, monthly payments are capped at 10% of a borrower’s discretionary income, and those earning less than $20,400 a year aren’t required to make payments. The new proposal would cap payments for undergraduate loans at 5% of borrowers’ pay, cutting their bills in half, and require payments only for those who earn more than about $30,000 a year.
As long as borrowers make their monthly payments, any unpaid interest would not be charged. The change is meant to prevent borrowers from having unpaid interest added to their loan balance, a practice that can cause debt to snowball even as borrowers make payments.
Significantly, the proposal would also make it easier to get debt erased after making several years of payments.
Existing plans promise to cancel any remaining debt after 20 or 25 years of payments. The new plan would erase all remaining debt after 10 years for those who took out $12,000 or less in loans. For every $1,000 borrowed beyond that, a year would be added.
Typical graduates of a four-year university would save about $2,000 a year compared with today’s plans, the Biden administration says, while 85% of community college borrowers would be debt-free within 10 years.
Opponents on the right blast the revamped plan as an unfair handout with a steep price tag. The Biden administration estimates the repayment plan would cost nearly $138 billion over the decade, and some critics have put it closer to $200 billion.
Even some on the left have questioned the prudence of the idea, saying it’s so generous that it effectively turns student loans into grants that don’t need to be repaid. That could lead more students to borrow, they warn, and it could spur colleges to raise tuition prices if they know students won’t be on the hook.
Still others have urged the administration to abandon income-driven payment plans entirely, calling them a failed policy. Critics cite a federal report from last year finding that sloppy oversight of the program left thousands of borrowers stuck with debt that should have been forgiven.
Cardona said his agency is working on other proposals that would hold colleges accountable if their students get overburdened with debt. One idea promoted by Biden is to warn the public about programs that leave graduates saddled with debt.
The Education Department on Tuesday began the process to deliver that goal, asking the public about the best way to identify “low-value” programs.
Adapted from reporting by the Associated Press