‘Student Loan Safety Net’ Would Ease Student Debt: Feds

ACROSS AMERICA — With its student loan forgiveness plan tied in court, the Biden administration said Tuesday it is moving forward with a “student loan safety net” to prevent borrowers from becoming overloaded with debt.

The proposal isn’t new but was announced in August by President Joe Biden as part of his sweeping plan to slash or eliminate debt for 40 million Americans. Some experts see it as the most powerful tool in the package to make college more affordable for people with lower incomes.

“Student debt has become a dream killer,” Education Secretary Miguel Cardona said in a conference call with reporters Monday. “This is a promise to the American people that, at long last, we will fix a broken system and make student loans affordable.”.

Deputy Education Secretary James Kvaal, who was also on the conference call, said the proposal importantly seeks more accountability from institutions whose students leave with mountains of debt they can’t afford to repay.

“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.”

The Biden administration said the proposal would save graduates of a four-year university about $2,000 a year. Significantly, 85 percent of community college borrowers would be debt-free within a decade of their graduation or completion of a program — a projection that drew criticism from people on the right, who said it is a backdoor approach to student loan forgiveness.

The cornerstone of the proposal is an overhaul of the income-driven loan repayment plan, one of four loan repayment options offered by the federal government. It would phase out three of the four income-driven plans to focus on one simplified option.

Currently, monthly payments are capped at 10 percent of a borrower’s discretionary income, and those earning less than $20,400 a year aren’t required to make any payments at all. The proposal would lower the cap to 5 percent, and pause loan repayments for people earning less than $30,600 a year.

It could take months before the proposal takes effect, though. The Education Department published the new plan Tuesday in the Federal Register, starting the lengthy public comment period, including on such matters as how the “low value” colleges and programs can best be identified.

The proposal also tackles the problem of spiraling interest with changes aimed at having unpaid interest applied to their loan balance — a practice that can cause federal student debt to snowball even as borrowers are chipping away at their loan balances. As long as they continue making payments, unpaid interest would not be charged.

The proposal would make it much easier to erase federal student debt after several years of payments. Debt cancellation is promised after 20 or 25 years of payments under existing rules; the new plan would erase all remaining debt after 10 years for those who took out loans of $12,000 or less. For every $1,000 borrowed beyond that, a year would be added to the payment schedule.

Supreme Court Oral Arguments Feb. 28

The Biden administration’s student loan debt cancellation plan faces an uncertain future as the U.S. Supreme Court prepares to hear a couple of cases challenging its legality. In the first lawsuit, six Republican-led states say the Education Department is exceeding its authority. The second is a lawsuit from two borrowers in Texas who said they disagreed with the criteria of the program and weren’t given an opportunity to comment.

In its brief, the Biden administration defended plans to absolve many Americans of their student loan debt as “reasonable,” arguing they “fall squarely within the plain text” of the law.

The loan forgiveness program remains on hold, and payments are paused under a federal injunction while the court sorts out its legality. Oral arguments in the two cases are scheduled for Feb. 28.

Turns Student Loans Into Grants

Biden supporters say the new proposal is a significant stride toward college affordability, and is so generous that it approaches free community college — a campaign promise Biden has pushed but failed to deliver.

The Institute for College Access and Success, a nonprofit organization that promotes college affordability, praised the proposal as a significant improvement over existing plans.

“The changes proposed today would provide meaningful financial relief to millions of borrowers and help shield students from debt that has not paid off, including those who start college but do not complete a degree,” said Sameer Gadkaree, the group's president.

Opponents on the right blasted the proposal as a too expensive handout and disputed the administration’s price tag, $138 billion over a decade, and said the true cost would be closer to $200 billion.

North Carolina Republican Rep. Virginia Foxx, who chairs the House Committee on Education and Workforce, said the proposed overhaul flips a federal loan program into “an untargeted grant with complete disregard for the taxpayers that fund it.”

“Because President Biden cannot get his radical free college agenda through Congress, he has resorted to doing it through the backdoor by executive fiat,” Foxx said in a statement.

The proposal isn’t universally accepted by people on the left, either. They also argue it essentially turns student loans into grants that don’t need to be repaid, and warn that letting students off the hook could set off even higher tuition cost increases.

Others have called income-driven repayment plans a failed policy and have called for their elimination entirely. Last year, a federal report found that sloppy oversight of the program left thousands of borrowers stuck with debt that should have been forgiven.

The Associated Press contributed reporting.