New Proposed Regulations Would Cut Student Loan Payments in Half, Reduce Interest

WASHINGTON – Today (Jan. 10), the U.S. Department of Education (Department) proposed regulations to reduce the cost of federal student loan payments, especially for low and middle-income borrowers. The regulations fulfill the commitment President Biden laid out in August when he announced his Administration’s plan to provide student debt relief for approximately 40 million borrowers and make the student loan system more manageable for student borrowers. The proposed regulations would create the most affordable income-driven repayment (IDR) plan that has ever been made available to student loan borrowers, simplify the program, and eliminate common pitfalls that have historically delayed borrowers’ progress toward forgiveness.  

“Today the Biden-Harris administration is proposing historic changes that would make student loan repayment more affordable and manageable than ever before,” said U.S. Secretary of Education Miguel Cardona. “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. These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness, so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families.” 

The proposed regulations would amend the terms of the Revised Pay As You Earn (REPAYE) plan to offer $0 monthly payments for any individual borrower who makes less than roughly $30,600 annually and any borrower in a family of four who makes less than about $62,400. The regulations would also cut in half monthly payments on undergraduate loans for borrowers who do not otherwise have a $0 payment in this plan. The proposed regulations would also ensure that borrowers stop seeing their balances grow due to the accumulation of unpaid interest after making their monthly payments.  

While these regulations would provide critical relief to student borrowers, the Biden-Harris Administration is also committed to ensuring postsecondary institutions and programs are held accountable if they leave borrowers with unaffordable debts. The Department is currently working on a proposed gainful employment regulation that would cut off federal financial aid to career training programs that fail to provide sufficient financial value and require warnings for borrowers who attend any program that leaves graduates with excessive debts. The same regulatory package will also include proposals to strengthen the conditions that can be placed on institutions that fail to meet the requirements of the Higher Education Act or exhibit signs of risk.  

The Department is also taking steps today to carry out President Biden’s announcement from August that the Department would publish a list of the programs at all types of colleges and universities that provide the least financial value to students. To advance this effort, the Department is publishing a request for information to seek formal public feedback on the best way to identify the programs that provide the least financial value for students. This public comment process will ensure the Department is carefully considering a range of perspectives and considerations as it constructs the list. Once the list is published, institutions with programs on this list will be asked to submit improvement plans to the Department to improve their financial value.  

Estimated effects of the proposed IDR Plan 

The proposed regulatory changes would substantially reduce monthly debt burdens and lifetime payments, especially for low and middle-income borrowers, community college students, and borrowers who work in public service. Overall, the Department estimates that the plan would have the following effects compared to the existing REPAYE plan: 

• Future cohorts of borrowers would see their total payments per dollar borrowed decrease by 40%. Borrowers with the lowest projected lifetime earnings would see payments that are 83% less, while those in the top would only see a 5% reduction. 
• A typical graduate of a four-year public university would save nearly $2,000 a year relative to the current REPAYE plan. 
• A first-year teacher with a bachelor’s degree would save more than $17,000 in total payments while pursuing Public Service Loan Forgiveness—a two-thirds reduction in what they would pay in total under REPAYE.  
• 85% of community college borrowers would be debt-free within 10 years
• On average, Black, Hispanic, American Indian, and Alaska Native borrowers would see their lifetime payments per dollar borrowed cut in half. 

Building on an Unparalleled Record of Debt Relief 

The draft regulations build upon the work the Biden-Harris Administration has already done to improve the student loan program, make colleges more affordable, approve $48 billion in targeted relief to nearly 2 million student loan borrowers, and fight to provide up to $20,000 in one-time debt relief to over 40 million eligible borrowers, including 26 million who have already applied. These regulations also propose to build on the Administration’s commitment to ensuring IDR plans deliver relief to eligible borrowers. This includes ongoing steps to provide accurate counts of progress toward forgiveness for borrowers through a one-time account adjustment. 

The proposed regulations and request for information will be published in the Federal Register tomorrow. The public may comment on both documents through the Regulations.gov website for 30 days. The Department expects to finalize the rules later this year and aims to start implementing some provisions later this year, subject to any changes made based on public comments. 

View an unofficial copy of the proposed IDR regulation here and a fact sheet with further information here. View an unofficial copy of the RFI here, and a fact sheet with further information here.