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Education Department kicks off an income-based student loan repayment plan

A MARTÍNEZ, HOST:

Tens of millions of borrowers who are expected to restart their student loan payments next month could be getting a break.

STEVE INSKEEP, HOST:

The Education Department is starting what it's calling the most affordable repayment plan in history - so affordable that the Biden administration says many borrowers will see some or even all of their federal student loans erased. This plan is separate from the outright loan forgiveness plan that the Supreme Court struck down earlier this year.

MARTÍNEZ: NPR's Cory Turner has been pouring through the nuts and bolts. Cory, how's this new plan going to work?

CORY TURNER, BYLINE: Well, the idea is pretty simple, A. The less you make, the less you pay each month. There have been other income-based plans, but this one, which they're calling the Saving on a Valuable Education Plan or the acronym SAVE, is much more generous than everything that came before. And that's really because of three big changes.

So first, it's going to dramatically lower monthly payments for millions of borrowers. It's also going to increase the number of people who qualify to make no payments at all. Second, under older plans, borrowers who qualified for those low or even $0 monthly payments still watched interest quite often explode their loans. Now, though, as long as you're paying what the government thinks you can afford, it's going to forgive any interest that's left over each month.

And then the third big change, A, is a kind of ticking clock toward forgiveness. For undergraduate borrowers who keep up with their payments for 20 years, the government promises to forgive whatever's left. That's not entirely new. What's new is if you borrowed $12,000 or less, maybe for community college, you'll only have to wait 10 years - half as long.

And one more thing. This is key. The administration wants to give many borrowers back credit for the years they've already been in repayment, which obviously would then bring them that much closer to forgiveness.

MARTÍNEZ: OK, so, price tag - what's it going to cost?

TURNER: All right. So the administration projects that people will see their total payments per dollar borrowed overall cut by around 40%. So that's a lot of debt the Ed department says it's ultimately going to be forgiving, which obviously has raised a lot of red flags, especially among conservatives. Here's Nat Malkus, who studies higher ed policy at the American Enterprise Institute.

(SOUNDBITE OF ARCHIVED RECORDING)

NAT MALKUS: That means that if you borrowed $10,000, you'll only pay back $6,200 on average. That doesn't sound like a loan program. It sounds like a quasi-grant program tacked onto the end of a loan program.

TURNER: I should say, A, at least one estimate suggests the cost could equal or even exceed the cost of the loan forgiveness plan the Supreme Court killed, and that was around $400 billion. I have spoken with other experts, though, who say, look, these big changes in this plan are going to help millions of low-income Americans afford their debts and access college in the future. Here's Dominique Baker. She's an associate professor of education policy at Southern Methodist University.

DOMINIQUE BAKER: Those are things that sound kind of policy wonky. They are incredibly impactful for people's lives. Like, bundled together, this is astounding.

MARTÍNEZ: You mentioned earlier the loan forgiveness plan the Supreme Court killed. What are the chances that this will face legal challenges?

TURNER: I think it's inevitable it will face legal challenge, though most of the folks I've talked to about this, even those who don't like the plan, say this one is on safer legal footing.

MARTÍNEZ: NPR education correspondent Corey Turner. Corey, thanks for looking into this.

TURNER: You're welcome, A. Transcript provided by NPR, Copyright NPR.

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