Biden's Education Department just proposed a new way to make monthly student-loan payments 'more affordable and manageable than ever before'

• The Education Department unveiled additional details of its reformed income-driven repayment (IDR) plan.
• It would amend the REPAYE plan by cutting undergraduate student loan payments in half and prevent interest capitalization.

Student-loan borrowers concerned about resuming payments just got additional details on how President Joe Biden proposes to help them out.

While the focus of the student debt conversation right now is focused on Biden's broad loan forgiveness, which is headed to the Supreme Court next month, his Education Department is also working on permanent reforms to targeted repayment and debt relief programs to address past failures.

One of those programs is the income-driven repayment (IDR) plan, which is intended to give borrowers affordable monthly payments based on their discretionary income with the promise of loan forgiveness after at least 20 years. As multiple reports over the past year have found, borrowers have struggled to actually get relief through IDR plans due to paperwork errors and issues tracking payments.

That's why the Education Department last year announced its intention to create a reformed IDR plan that would fix the problems of the past and help borrowers achieve relief — and on Tuesday, the department officially proposed those new regulations detailing how the plan would work.

"Today the Biden-Harris administration is proposing historic changes that would make student loan repayment more affordable and manageable than ever before," Education Secretary Miguel Cardona said in a statement. "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," he added.

The department previewed these reforms in August when Biden announced his plan to cancel up to $20,000 in student debt for federal borrowers making under $125,000 a year. In that announcement, the department said that the new IDR plan would require borrowers to pay no more than 5% of their discretionary income monthly on their undergraduate student loans — down from the current 10%, and it would also prevent interest from adding onto a borrower's principal balance.

Rather than creating an entirely new plan, as a fact sheet said, the department will amend the Revised Pay
As You Earn (REPAYE) plan, which was created in 2016 to calculate borrowers' monthly payments based on their discretionary income. Along with cutting undergraduate payments and preventing interest accumulation, the proposed reforms would:

• Offer $0 monthly payments to an individual borrower who makes under $30,600 annually and any borrower in a family of four who makes under $62,400
• Help more low-income borrowers by increasing the amount of income protected from repayment to 225% of the federal poverty level
• Shorten the timeframe for receiving loan forgiveness by allowing those who borrowed $12,000 or less originally to receive debt relief after ten years
• Protect borrowers at risk of default by automatically enrolling them in an IDR plan that provides them with the lowest possible monthly payment
• And give borrowers already in default access to IDR plans.

Notably, borrowers with parent PLUS loans — a type of loan that allows parents to borrow up to the full cost of attendance to fund their child's education — would not be included in these reforms.

The department estimates these changes will allow future borrowers to see their total payments by dollar decrease by 40% and help 80% of community college students be debt-free in ten years.

To be sure, the implementation of these reforms is key. Both Democratic and Republican lawmakers have stressed the importance of creating a workable IDR plan in the past year, and a senior administration official told reporters on a press call that the Education Department is paying close attention to the implementation process.

These reforms are currently proposals and borrowers can submit public comment on them for the next 30 days before final implementation, which does not yet have a firm date.