Biden’s plan to cut student loan repayments goes to Supreme Court as part of Republican challenge program

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Biden plans to cut student loan payments for millions and suspend them for anyone earning less than $30,600 a year as he fights his multibillion-dollar pardon program in Supreme Court

  • The Biden administration took a step Tuesday that will cut student loan payments for millions
  • It will completely suspend payments for borrowers who earn less than $30,600 a year
  • As President’s Pardon Plan Heads to Supreme Court, Administration Moves Forward With Means-Based Reimbursement Changes

The Biden administration took action on Tuesday that will cut student loan payments by millions and completely suspend payments for borrowers who earn less than $30,600 a year.

Proposed changes to the income-focused repayment plan will allow borrowers to pay only 5% of their discretionary income, down from 10% previously, on their federal undergraduate student loans.

“Student debt has become a dream killer,” Education Secretary Miguel Cardona said on a call with reporters Monday night. “It’s a promise to the American people that we will finally fix a broken system and make student loans affordable.”

Education Department officials call the new plan a “student loan safety net.”

Education Secretary Miguel Cardona

President Joe Biden’s administration (left) took a step on Tuesday that will reduce monthly student loan payments for millions of Americans, with Education Secretary Miguel Cardona (right) warning that high loan payments students have become a “dream killer”

As income-based repayment now works, up to 10% of a borrower’s Discretionary Income can go towards their student loan bills.

Only those earning less than $20,400 are not required to make payments.

The new proposal says anyone earning less than $30,600 won’t have to make payments, or a borrower in a family of four who earns less than $62,400.

The updated plan will also reduce interest, with no accrued interest being added to borrowers’ balances if they make their monthly payments.

The government will also cancel the loans within a shorter period.

Undergraduate borrowers will have their loans canceled no later than after 20 years of payments.

For those who have only taken out $12,500 or less, loans can be canceled after 10 years.

Every $1,000 over $12,500 will add an additional year, but it will still be capped at 20 years for forgiveness.

The Biden administration will also make deferred payments due to receiving cancer treatment or military service count toward loan forgiveness.

The Department of Education proposed the reimbursement plan changes on Tuesday by posting them in the Federal Register, opening it up for public comment.

The plan does not give much relief to borrowers who have taken out loans for graduate programs.

Graduate borrowers will continue to have to pay 10% of their discretionary income on student loan bills.

If a borrower has undergraduate and graduate loans, they will pay between 5-10% of their Discretionary Income.

Additionally, graduate loans will remain at the 25-year mark for forgiveness.

President Joe Biden took office when federal student loan payments were suspended, implemented by former President Donald Trump at the start of the COVID-19 pandemic in March 2020.

He appeared reluctant to cancel large portions of loans, with Democrats including Senate Majority Leader Chuck Schumer pushing him to cancel up to $30,000 per borrower.

In August, it announced it would forgive $10,000 in student loan debt for any US borrower earning less than $125,000 a year.

Republicans, however, challenged the debt relief and he headed to the Supreme Court.

The nine justices will hear oral arguments in February on two cases challenging the legality of Biden’s program.

Meanwhile, the president has extended the repayment pause, announcing in November that federal student loan repayments would resume 60 days after the litigation is resolved or 60 days after June 30, whichever comes first.