By Raymond AlQaisi, Senior Manager of Policy and Advocacy
Reading time: Three minutes
At the start of the year, the Biden Administration announced a proposal that would make major changes to the federal student loan repayment system—including a significant overhaul of income-driven repayment (IDR). The proposed changes would greatly simplify repayment and offer
the most affordable repayment option ever made available to borrowers.
On the changes, the US Department of Education (ED) said in statement that, “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.”
Specifically, the proposal would accomplish the following:
Increase the amount of income “protected” from repayment. Currently, IDR borrowers make payments on income that exceeds the set protected amount of 150% of the Federal poverty guidelines. This proposal would up the income protected
to 225%. If this plan were in effect today, a single borrower who made less than $30,500 in annual income would not have to make loan payments.
Cut undergraduate loan payments in half. Currently, IDR borrowers make payments equal to 10% of their discretionary income. Under this plan, borrowers would only be expected to pay 5% on undergraduate loans.
Prevent unpaid interest accumulation. Under this plan, borrowers’ payments are still first applied to interest, but if the payment is not sufficient to cover that amount, the remaining interest is waived. ED currently estimates that
as many as 70% of borrowers who entered IDR saw their balances grow due to unpaid interest accumulation.
Decrease time-to-forgiveness for undergraduate borrowers with low debt balances. Under this plan, undergrad borrowers who take out $12,000 or less in federal student loans would receive complete debt forgiveness after 10 years of
payments. Borrowers who took more in loans would see time-to-forgiveness increase by one year of monthly payments for each $1,000 they borrowed above $12,000. ED estimates that 85% of borrowers who attended community college would be debt free
within 10 years.
Provide credit for time in loan deferment/forbearance and before loan consolidation. This plan seeks to expand the types of deferments/forbearances that can be counted toward forgiveness under IDR. It would also provide some credit
for prior payments when borrowers consolidate their student loans. Currently, borrowers’ progress to forgiveness is fully reset after consolidation.
Help at-risk borrowers. Under this plan, borrowers with delinquent loans could now be automatically enrolled into IDR, where they could potentially not have to make any payments (see above on protected income). Also, borrowers with
loans in default would be given the option to access the IDR plan.
ED is hoping to finalize and begin implementing parts of this plan this year, and have opened the proposal for public comment (the comment period closes February 10).
The Biden Administration has shared that this plan builds on their many efforts to improve the system and help student loan borrowers—including the one-time, targeted, student debt relief program, which would provide up to $20,000 in relief to 40 million eligible borrowers. Currently, that debt relief program has been halted until its legality is reviewed by the US Supreme Court.
Ultimately, with these changes, ED appears to be creating a more straightforward system of repayment for borrowers to navigate and reinforcing the “safety net” which in past has failed to help some borrowers. NCAN will keep members updated on these proposed regulations and other developments on student loan repayment.
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