Biden administration proposes new student loan repayment plan that could reduce some payments by half

The U.S. Department of Education has proposed new regulations that would reduce the monthly payments for certain federal student loan borrowers. This would provide much-needed relief for borrowers who are struggling to repay their loans. The department is currently seeking public comment on the proposed regulations.

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The administration of President Joe Biden has proposed an overhaul of one of the existing income-driven repayment plans, known as Revised Pay As You Earn or REPAYE. Under the proposal, borrowers' bills would be capped at a percentage of their discretionary income.
"We cannot return to the same broken system we had before the pandemic," U.S. Secretary of Education Miguel Cardona said in a statement. "A million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed."

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According to Personal Finance, the best way to pay down high-interest debt is to focus on the debt with the highest interest rate first. 63% of Americans are living paycheck to paycheck, which can make it difficult to make headway on debt repayment. Additionally, risky behaviors like maxing out credit cards can cause credit scores to level off.

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The new REPAYE plan would reduce monthly obligations by as much as 50%, according to a fact sheet from the Education Department. A typical graduate from a four-year public university could save around $2,000 annually under the new plan.

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Currently, the most affordable income-driven repayment plan requires borrowers to pay 10% of their discretionary income each month to their student debt. This change would lower that ceiling to 5%. This would make it easier for borrowers to repay their debt and would help to reduce the overall amount of student debt.
According to higher education expert Mark Kantrowitz, the plan should officially be available July 1, 2024, but some parts of it may be implemented sooner.

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Income-based repayment plans for student loans date back to the mid-1990s. These plans provide an alternative to the standard repayment plan, which spreads debt obligations evenly over a decade, or 120 months. Income-based plans typically involve lower payments spread out over a longer period of time, with any remaining balance forgiven.

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The announcement comes as the fate of Biden's sweeping student loan forgiveness plan remains uncertain. The U.S. Supreme Court is scheduled to hear oral arguments on the policy at the end of February.

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Biden announced in August that tens of millions of Americans would be eligible for cancellation of their education debt. Those who received a Pell Grant in college would be eligible for up to $20,000 in debt relief, while those who didn't receive a Pell Grant would be eligible for up to $10,000 in debt relief. This would provide much-needed relief to low-income families who are struggling to pay off their student loans.

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Since President Obama announced his plan to cancel $10,000 in student loan debt for every borrower, Republicans and conservative groups have filed at least six lawsuits in an attempt to stop the policy from going into effect. These groups argue that the president does not have the constitutional authority to cancel consumer debt without approval from Congress, and that the policy would be harmful to the economy.

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The Biden administration is acting within the law by pointing to the Heroes Act of 2003. This act grants the authority to the U.S. secretary of education to make changes related to student loans during national emergencies. The country has been under an emergency declaration due to Covid since March 2020.

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The government has stated that the public health crisis has caused significant financial harm to student loan borrowers, and that cancelling their debt is necessary to prevent a historic increase in delinquencies and defaults.