With student loan debt a heavy burden to carry, President Biden announced his new plan to help address the financial hardships caused by the COVID-19 pandemic. The three-part initiative includes targeted debt relief for individuals, as well as making student loans more manageable through cuts in monthly payments and protecting future generations of college-goers from price hikes at universities that are too much burden on current taxpayers
The Public Service Loan Forgiveness (PSLF) program, created in 2007, was designed to encourage Americans to enter and stay in public service jobs by forgiving the remaining balance on their federal student loans after they make 10 years of qualifying payments. However, due to a number of design flaws, the program has failed to live up to its promise. As of 2019, only 1% of eligible borrowers have had their loans forgiven. In response to this problem, the Department of Education has proposed a new rule that would protect future students and taxpayers by reducing the cost of college.
Under the plan, Pell Grant recipients with loans held by the Department of Education will be eligible for up to $20,000 in debt cancellation, and non-Pell Grant recipients will be eligible for up to $10,000 in debt cancellation. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples). The President stressed that no high-income individual or household will benefit from this action. This relief is part of the President’s campaign commitment to provide targeted assistance to those who have been most impacted by the pandemic.
In an effort to make the student loan system more manageable for current and future borrowers, the Department of Education is proposing a new income-driven repayment plan. Under the new plan, monthly payments for undergraduate loans would be cut in half, capping at 5% of a borrower’s discretionary income. This would lower the average annual student loan payment by more than $1,000 for both current and future borrowers. The new plan would also protect more low-income borrowers from making any payments. The Department of Education is hoping that this will ease the burden of student loan debt for many Americans.
The cost of college has been a hot-button issue for years, and there is no signs of the debate cooling down any time soon. According to a recent report, the average annual cost of tuition and fees at a four-year public university is now over $9,377, while the average annual cost of tuition and fees at a four-year private university is over $37,641. This puts a college education out of reach for many families, and it also means that students who do manage to attend college are often saddled with a significant amount of debt. This is why reducing the cost of college and holding schools accountable when they hike up prices is so important. The President has championed the largest increase to Pell Grants in over a decade, as well as one of the largest one-time influxes to colleges and universities. To further reduce the cost of college, the President will continue to fight to double the maximum Pell Grant and make community college free. Meanwhile, colleges have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.
In a move that will come as a relief to many Americans, the Biden administration has announced that student loan repayments will be paused until December 31, 2022. After that, repayments will begin in January 2023. The administration is also proposing a rule that would create a new income-driven repayment plan. Under this plan, borrowers would pay no more than 5% of their monthly income on undergraduate loans; the current threshold is 10%. In addition, the amount of income that is considered “non-discretionary income” would be increased so that no borrower earning below 225% of the federal poverty level will have to make a monthly payment. For borrowers with loan balances of $12,000 or less, loan balances would be forgiven after 10 years of payments instead of the current 20-year mark. These proposed changes would provide much-needed relief to millions of Americans who are struggling to repay their student loans.
