Federal Student Loan Repayment Plan Now Available for Low-Income Borrowers
WASHINGTON — The U.S. Department of Education unveiled a proposal Tuesday that would overhaul a federal student loan income-driven repayment plan, and, if implemented, could help millions of low-income borrowers.
However, it’s unclear how the agency would be able to finance the program. Many students debt relief advocates have also condemned the proposal because it excluded graduate students as well as parental loans.
The federal agency that would execute the plan, Office of Federal Student Aid manages loans for 44 millions borrowers. It was not granted an increase of $2 billion in funding in the $1.7 trillion federal spending bill, which covers the current fiscal year.
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Senior administration officials spoke to reporters late Monday night and said that funding their new plan would prove difficult.
“It’s true that we were very disappointed with the level of funding we received from Congress for Federal Student Aid,” a senior administration official said. “And that’s going to make it a challenge for us to carry out a number of our policy initiatives.”
Plans can be changed
The rule proposed would reduce the amount of income that undergraduate borrowers must pay towards their loans to 5%. This would be lower than the 10% required by the current income-driven repayment scheme.
The proposed rule would also amend the “Revised Pay As You Earn” federal plan to offer zero monthly payment plans to any borrowers who make less than $30,600 a year and any borrower in a family of four who makes less than $62,400.
“The proposed regulations would also ensure that borrowers stop seeing their balances grow due to the accumulation of unpaid interest after making their monthly payments,” according to the Department of Education’s website.
The department’s goal is to implement the program this year, officials said. However, rule making This can be a tedious process that can even take longer. if there are legal challenges. The public can comment on Wednesday at 8:00 p.m. proposed rule.
Way to forgiveness
Miguel Cardona, U.S. Education Secretary, stated in a statement that the regulation proposed will create a quicker pathway to federal loan forgiveness and help borrowers avoid defaulting.
“We cannot return to the same broken system we had before the pandemic, when a million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed,” he said.
More than 43 million Americans have student loans, and the Federal Reserve estimates The U.S. total student loan debt exceeds $1.76 Trillion.
The department estimates that federal loan borrowers with low incomes will see their payments drop by 83%, and those with higher incomes, a reduction of 5%.
If the program is implemented, federal student loan borrowers who go to community college will be debt-free in 10 years.
The move comes as the Biden administration’s larger plan for student loan relief is tied up in the courts and under a nationwide injunction awaiting a U.S. Supreme Court hearing and ruling.
Administration has been unable to implement its plan for student loan debt cancellation up to $20,000 for millions.
Oral arguments in the case will be heard by Supreme Court members Feb. 28.
Criticism of a proposal
The Committee for a Responsible Federal Budget is a bipartisan think-tank that focuses on government spending. It criticised Tuesday’s plan, arguing that if it was implemented, it would result in more student loan borrowing, and higher tuition costs.
Maya MacGuineas, the president of the group, said in a statement that “it now looks like the Biden Administration’s student debt proposals could cost $600 billion, or perhaps even more.”
“The Administration should abandon their unilateral effort to remake higher education financing, and instead work with Congress on a thoughtful package of reforms that truly address college costs and value,” she said.
Persis Yu, deputy executive director of Student Borrower Protection Center stated that although the proposals were significant, the Department of Education must go further and include Parent PLUS loans, as well graduate student loan borrowers, in the program.
Parent PLUS loans allow parents to borrow money for a dependent’s higher education, and those loans are on an income-driven repayment plan. The parent cannot transfer the loan to the child.
According to the Parent PLUS Loans Database, there are approximately 4 million. Student Loan Hero.
Yu argued that many low-income families of color are more likely to rely on Parent PLUS loans and students of color are more likely to “need to get a graduate degree to earn the same salary as their wealthier white peers.”
“Equity demands that these borrowers have equal access to an affordable payment plan and the necessary supports to free themselves from the crushing weight of student debt,” Yu said.
Natalia Abrams is the president of Student Debt Crisis Center which advocates student loan debt relief.
“Unfortunately, the plan repeats past mistakes that leave too many holes in the student loan safety net,” she said.
“Parents are excluded from the new benefits even though many are shouldering their children’s debt on top of their own debt. And, graduate students are blocked from the full benefits of the plan despite them carrying higher, more unaffordable monthly payments.”
Abrams advocated for reforms and a debt cancellation plan that was broad-based to benefit all borrowers.
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