College graduation

Biden released a plan in August to reform income-driven repayment plans for student-loan borrowers.
A CBO report this week found the reforms would cost $230 billion over ten years.
It also projected the more generous plan would lead to increased borrowing given the lower cost to take on debt.

Monthly student-loan payments might soon be a lot cheaper for borrowers — but it could be a double-edged sword.

Alongside his announcement of up to $20,000 in student debt relief for federal borrowers in August, President Joe Biden also announced his plan to implement reforms to income-driven repayment plans. The plans are intended to give borrowers affordable monthly payments based on their income with the promise of loan forgiveness after at least 20 years. To date, servicer failures in tracking payments accurately have kept borrowers in repayment far longer than they anticipated.

Rather than creating an entirely new plan, Biden’s proposal would amend the existing Revised Pay As You Earn (REPAYE) plan, which was created in 2016 to make payments more affordable for borrowers. The changes include ensuring borrowers pay no more than 5% of their discretionary income monthly on their undergraduate student loans — down from the current 10% — and shorten the timeframe for receiving loan forgiveness by allowing those who borrowed $12,000 or less originally to receive debt relief after ten years.

While Democratic lawmakers lauded the proposed improvements to IDR plans, Republican lawmakers criticized the proposal, along with its potential cost. That’s why the House Education Committee Chair Virginia Foxx and Senate education committee ranking member Bill Cassidy asked the Congressional Budget Office (CBO) to prepare a report on the costs of Biden’s IDR proposal. CBO released its report on Monday. It estimated the reforms would cost $230 billion over ten years, and if Biden’s broad debt relief plan falls through, that cost would rise to $276 billion due to an expected increase in borrowing.

“The administration’s Income-Driven Repayment rule is nothing more than a backdoor attempt to provide free college by executive fiat,” Foxx said in a statement. “Transferring $230 billion from borrowers who willingly took out debt to taxpayers who did not is fiscally irresponsible and morally reprehensible. Make no mistake, I soundly reject this illegal abuse of power.”

The CBO noted uncertainty with its estimates, as “it is difficult to anticipate the ways students and postsecondary institutions would respond to the availability of the plan.” …read more

Source:: Business Insider


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