A new proposal from the Biden administration would lower federal student loan payments for some Americans – and pause payments completely for anyone making less than $30,600 a year.
“Today, we’re making a new promise to today’s borrowers and for generations to come: Your student loan payments will be affordable,” Secretary of Education Miguel Cardona said in a call with reporters Monday evening. “You won’t be buried under an avalanche of student interest, and you won’t be saddled with a lifetime of debt.”
By making changes to existing income-driven loan repayment plans, the administration hopes to “transform college financing and reduce future borrowers’ total payments per dollar by $0.40, while targeting that help on low- and middle-income borrowers,” Deputy Secretary James Kvaal told reporters. The plan would create a “true student loan safety net,” he said.
Biden first committed to reforming the income-driven repayment plan program when he announced his student loan relief plan – which is tied up in the courts – in August. The Department of Education says this announcement “delivers on President Biden’s commitment to fix the student loan repayment system” and is a “key step in the Biden-Harris Administration’s broader effort to make higher education more affordable.”
One proposed change would raise the threshold for repayments. Single borrowers making less than $30,600 per year would not need to make any payments under the proposal, up from the current $24,000 threshold. The figure is based on the poverty line, Kvaal said.
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Borrowers with higher incomes would also save “at least $1,000 per year” compared with existing plans. Payments for undergraduate borrowers above that threshold would be cut in half from 10% of income to 5% of income under the proposal, and borrowers with both undergraduate and graduate debt would pay “between 5 and 10% of their income based on a weighted average of their balances,” Kvaal said.
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The Department of Education would also stop charging unpaid monthly interest and would shorten the time it takes for some smaller loans to be forgiven.
“Under existing plans, any remaining balance will be forgiven after 20 years of payments, but we’re also giving borrowers with smaller loans a path to forgiveness in 10 years,” Kvaal said. “One shortcoming of the existing IDR (income-driven repayment) plans is that all borrowers must be in repayment for up to 20 years, even if they only enrolled in college for a semester or two or borrowed a few thousand dollars.”
View this interactive content on CNN.comThe changes could impact the roughly 8 million people currently enrolled in income-driven repayment plans for their federal student loans and could open it up for more borrowers to enroll. “In fact, many additional borrowers could achieve lower monthly payments by enrolling,” Kvaal said.
The plan also includes increased accountability for institutions that leave most of their students unable to afford their loans.
“It’s time to name names about these programs and have a frank conversation about the root causes of unaffordable student debt,” Kvaal said. “We plan to ask the colleges with programs that land on the list to provide an improvement plan, and we’re considering regulatory steps to warn students about these programs before they enroll. For the next 30 days, we will be inviting public comment on how to best build this list.”
The administration is seeking feedback with a 30-day public comment period. A final rule could be released later this year, but administration officials did not have a firm date to share on the timeline.
CNN’s Katie Lobosco contributed to this report.