New student loan repayment proposal aims to help borrowers succeed

Michael Perchick Image
Tuesday, January 10, 2023
Student loan repayment proposal aims to help borrowers
The Biden administration shared details about a new student loan plan, as it works to address borrowers concerns over debt repayments.

The Biden administration shared details about a new student loan plan, as it works to address borrowers concerns over debt repayments.

This proposal would link student loan amounts with a borrowers income, using a sliding scale to provide the greatest relief to those making the least amount of money.

"This is obviously what we consider first steps of down the road changes that we really need to see happen. People shouldn't spend 20, 25 years of their life paying back a higher education. So hopefully this keeps spurring us to keep talking about how do we get to free college, and how do we get these reforms happen faster," said Melissa Byrne, founder of the advocacy organization We, the 45 Million.

Byrne took out student loans to attend college, and shared the lingering monies owed can have a years-long impact.

"If you're in a room and your colleagues in a room and you have debt and they don't, that means they have an easier chance to get an apartment, to save for a home, to take a vacation, or in a bad case if you're in a workplace that your boss isn't great and you need to make a change, if you have the student debt you don't have the same savings level to be able to have that cushion," Byrne said.

The changes impact the income-driven repayment plan, and would cut the amount borrowers need to make on a monthly basis to 5% of discretionary income.

"There were a couple reports out that some families would save $2,000 a year on payments, that's real money. That's not cutting around the edges," said Byrne.

"We want to make sure student loans aren't pushing people into poverty or closer to poverty and that student loan payments are affordable. It's really at attempt to create a safety net for student loans for really the first time in this country," said James Kvaal, who serves as Undersecretary of Education.

For borrowers making less than $15 an hour ($30,600 a year), or couples with two kids who make up to $62,400 total, there would be no required monthly payments.

"One of the problems we have with the current plans is even if you're making the payment you owe, you're paying on time, sometimes that payment doesn't cover interest, so you see the loan balance continue to grow, even though you're doing everything you're supposed to do. So this new plan would address that problem. We would make sure that as long as you're making your payments on time and in full, your loan balance wouldn't grow due to interest," Kvaal said.

Kvaal added they are also beginning the process to identify universities and majors that lead to higher debt.

"It's the universities that have failed to deliver to students and who should be responsible for unpaid loans and have some skin in the game instead of the taxpayer," said Jenna Robinson, President of the James G. Martin Center for Academic Renewal.

Robinson believes proactive policies to address tuition costs are vital to prevent future generations from experiencing the same issues.

"I think long-term, universities aren't going to have any incentives to change their ways. They're not going to have incentives to get their graduation rates up, to bring their tuition rates in line with expected (return on investment), or to address why students are underemployed. And so I'd much rather see a plan takes into account the long-term and not just the short-term," said Robinson.

According to the Education Data Initiative, the average cost of tuition and fees at a four-year public school have risen by nearly 180% over the past two decades. At the state's 16 UNC system campuses, tuition rates have remained flat for six straight years.

"The UNC System has made that smart move so that students won't have to take on as much debt," Robinson noted.

A report from LendEDU found in 2019, North Carolina borrowers had the 19th lowest amount owed on average nationally.

Kvaal said the Department of Education does not plan to introduce the proposal through Congress, believing it has the authority to take action unilaterally. ABC 11 reached out to the office of Rep. Virginia Foxx, who chairs the House Committee on Education for comment on the proposal, but have not heard back at this time.

However, they will face funding limitations, after the Congress opted to keep the budget for the Office of Federal Student Aid flat this year; the projected cost for this proposal is $137.9 billion over the next decade.

"Obviously we're disappointed by the level of funding for operating the student aid programs. That is going to have real consequences for students. And we're working through now what all the ramifications are. But this new plan is a high priority," said Kvaal.

The Department of Education is opening up the proposal for public comment, with a goal to begin implementing it later this year.