Following up on a plan announced by President Joe Biden back in August, the Education Department formally proposed changes Tuesday. The department said would “reduce the cost of federal student loan payments, especially for low and middle-income borrowers.” Department officials called the new plan a “student loan safety net” that will prevent borrowers from getting overloaded with debt. If it’s finalized, the proposal would do the following:
Overhaul income-driven repayment plans by phasing out three types of them and focusing on one simplified option.
Cap payments for undergraduate loans at 5% of borrowers’ pay.
Require payments only for those who earn more than about $30,000 a year.
End the accumulation of unpaid interest on those making monthly payments.
Erase all remaining debt after 10 years for those who took out $12,000 or less in loans (for every $1,000 borrowed beyond that, a year would be added).
“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,” Education Secretary Miguel Cardona said in a statement. “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.”