Just hours after the Supreme Court struck down the president’s student loan forgiveness plan, the White House came back on Friday with several avenues to support borrowers.
The Biden administration is seeking to provide debt relief under the Higher Education Act of 1965 and has initiated that regulatory process. Additionally, the Education Department is creating a temporary 12-month on-ramp repayment program that removes the threat of default if borrowers miss payments once they restart in October. Third, the administration finalized a new income-driven repayment plan that it called “the most affordable repayment plan in history.”
The goal is to ease some of the financial strain many borrowers face when it comes to their student loans and is a direct response to the Supreme Court’s decision earlier Friday.
“I believe the Supreme Court’s decision to strike down student debt relief was a mistake, it was wrong,” President Joe Biden said Friday afternoon in a press briefing.
“It will take longer, but it’s the best path that remains,” he added regarding the steps the administration is taking to provide debt relief. “We’re not going to waste any time on this.”
The Education Secretary on Friday initiated a rule-making process in an effort to open “an alternative path to debt relief for as many working and middle-class borrowers as possible” under the authority provided by the Higher Education Act, according to a White House factsheet.
The Education Department on Friday issued a notice that announced a virtual public hearing on July 18 and asks for written comments from stakeholders. After the hearing, the department will finalize the issues that need to be addressed and hold negotiated rule-making sessions this fall.
The White House factsheet did not make clear if the Biden administration is pursuing the same forgiveness plan parameters that the court struck down. Under that plan, the federal government planned to forgive $10,000 for individuals who made less than $125,000 and for households that earn less than $250,000. An additional $10,000 in forgiveness goes to those who received need-based Pell Grants.
The White House press office did not immediately respond to an email to clarify the debt relief parameters it was pursuing under the Higher Education Act.
On-ramp repayment plan
The administration also unveiled a plan to help borrowers when they restart their paused payments in October. For 12 months, borrowers won’t be penalized for late, missed, or partial payments. Borrowers don’t have to take any action to qualify for the program.
The payments will still be due and interest will still accrue during the 12 months, but the interest will not capitalize at the end of the on-ramp period. Borrowers who miss payments won’t be reported to credit bureaus, won’t be considered in default, and won’t be referred to collection agencies for those payments.
The administration encouraged borrowers who can afford to pay their payments to do so.
New income-driven repayment plan
Last, the administration finalized the Saving on a Valuable Education (SAVE) plan. The White House said this new income-driven repayment plan will cut borrowers’ monthly payments in half, allow many borrowers to pay $0 in monthly payments, and prevent balances from growing due to unpaid interest.
The plan makes loan payments more affordable in the following ways:
The most borrowers must pay toward their undergraduate loans is 5% of their discretionary income, down from 10%.
No borrower making less than 225% of the federal poverty level will have to make a monthly payment.
Loan balances will be forgiven after 10 years of payments — instead of 20 years — if the original loan balance was $12,000 or less.
Borrowers won’t be charged with unpaid monthly interest, so balances won’t grow if they make their payments — even if that monthly payment is $0 because their income is low.
Student borrowers in repayment can enroll later this summer before monthly payments restart. Borrowers who sign up or are already signed up for the Revised Pay as You Earn (REPAYE) plan will be automatically enrolled in the new plan.
“President Biden, Vice President Harris, and I will never stop fighting for borrowers,” Education Secretary Miguel Cardona said in a press statement, “which is why we are using every tool available to provide them with needed relief.”
Janna Herron is the personal finance editor for Yahoo Finance. Follow her on Twitter @JannaHerron.