The White House is moving forward with a proposal that would lower student debt payments for millions of Americans, offering a new route to repay federal loans under far more generous terms.
President Joe Biden announced the repayment plan in August, but it was overshadowed by. Despite the low profile of the payment plan, however, some education experts see it as a more powerful tool to make college affordable, especially for those with lower incomes.
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. 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.
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. 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.
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