WASHINGTON, D.C. (WCMH) – The U.S. Department of Education unveiled on Thursday its latest plan to curb the cost of Americans’ student loan payments.

President Biden proposed a series of changes to the Revised Pay As You Earn plan – an income-driven repayment plan that caps a borrower’s student loan repayments at a percentage of their discretionary income – to reduce monthly debt costs and shorten the time frame to forgive borrowers’ loans, the White House said.

Under the proposed plan, the cost of lifetime payments for future borrowers is expected to drop by 40%, and the typical graduate of a four-year public university is anticipated to save $2,000 a year, the Biden administration estimated. The regulations would make the REPAYE plan “the most generous” income-driven repayment plan for most U.S. borrowers, according to the White House.

“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,” U.S. Secretary of Education Miguel Cardona said in a statement.

Exempts more U.S. borrowers from repayments

Borrowers on the current REPAYE plan incur student loan payments equal to 10% of their “discretionary” income, or income that exceeds 150% of federal poverty guidelines, according to the White House. That means a single borrower would start paying when income surpasses about $20,400, and a four-person family would begin payments at $41,600.

Under Biden’s proposal, a borrower’s income is protected until it exceeds 225% of federal poverty guidelines, which sits at approximately $30,500 for a single person – the equivalent of making $15 an hour – and $62,400 for a family of four, The White House said.

“This would help protect more borrowers from having to choose between making a loan payment and covering basic needs, such as paying rent or buying groceries,” the White House said.

Slashes undergraduate loan repayments by 50%

Biden’s plan would cut in half the amount a borrower owes when repaying loans used for undergraduate studies, the White House said. For instance, a single undergraduate-loan borrower would make payments equal to 5% of an income higher than $30,500, as opposed to the existing 10% requirement.

Although borrowers with debt solely from a graduate program aren’t entitled to Biden’s half-off repayment deal, those saddled with loans from both graduate and undergraduate programs are eligible for payments between 5 and 10% of their discretionary income.

That figure is calculated, the White House said, based on a weighted average of the borrower’s share of original loan balances. For example, a borrower with $20,000 in undergraduate loans and $60,000 in graduate loans would pay 8.75% of their income.

Expedites path to loan forgiveness

Current IDR plans forgive a borrower’s remaining student loan balance after 20 or 25 years of payment – regardless of the amount borrowed – leaving the Department of Education “concerned” that borrowers with small balances will avoid enrolling in an IDR plan.

Under the new proposal, borrowers of $12,000 or less would receive loan forgiveness after 10 years of payments, according to the White House. Every additional $1,000 borrowed would tack on one year of monthly payments until the borrower is eligible for forgiveness.

The expedited loan forgiveness path “will be particularly beneficial” for borrowers who attended a community college, the White House said, estimating around 85% of community college borrowers will be debt-free within 10 years of beginning repayments.

Prevents unpaid interest from piling up

About 70% of borrowers enrolled in an income-driven repayment plan incur larger balances after enrolling in those plans “because the payment they can afford is lower than the accrued interest,” according to The White House. Biden’s plan seeks to stop that.

“Under the Department’s proposed regulations, borrowers won’t see their balances balloon while they’re making regular payments, including those who have a $0 payment,” the White House said.

For borrowers whose monthly payments are insufficient to cover the full cost as applied to interest, any remaining interest would not be charged, according to the White House. That’s an expansion from the current REPAYE plan, in which borrowers have at least half of unpaid interest waived each month.

Creates safety net for at-risk borrowers

Since student loan borrowers “far too often” struggle with repayment and end up in default, the White House said Biden’s new plan would automatically enroll those who are at least 75 days late on their payments into an IDR plan that gives them the lowest monthly payment.

Borrowers currently in default could, for the first time under Biden’s proposal, access an IDR plan, providing those unable to exit default with cheaper monthly payments and a quicker path to loan forgiveness.

What about Biden’s earlier attempt to erase student debt?

The proposed REPAYE changes come about a month before the U.S. Supreme Court is expected to hear a lawsuit challenging Biden’s student loan forgiveness plan introduced in August. 

Under the plan individuals earning $125,000 or less each year are eligible for thousands of dollars in forgiven loans. Pell Grant recipients are eligible for up to $20,000 in debt erasure, and non-Pell Grant recipients can qualify for up to $10,000.

Biden’s forgiveness program, which was temporarily blocked by a federal judge in Texas in November, remains in limbo as the case is deliberated in court.