For some weighed down by student loans, it’s been a good couple of months. President Joe Biden extended the student loan pause until August, and the Education Department announced that it was evaluating payment records to give more credit for the strides borrowers have been making toward federal direct loan forgiveness.
The new “Income-Driven Repayment Plan” will reduce loan payments for low-income borrowers. The latest changes will lessen the time until student loan forgiveness. In a projected 40,000 cases, the borrower’s remaining balance will be completely wiped out.
Federal direct student loans represent the large majority of debt over private student loans. While this new plan will reduce loan payments for primarily low-income borrowers, it will not apply to all of them.
Addison Price, a junior public service and global affairs major, said that this plan is especially important for low-income students at private institutions like Gannon University.
“Private, Catholic institutions have a stereotype of being full of wealthy, upper-class students,” Price said. “Obviously this is not always the case, but by giving students a better chance to afford tuition, there is an even higher chance of reducing that prejudiced idea.”
Jack Sherwin, a freshman business marketing major, said that there seems to be some discrepancies between who is considered a low-income student and who is actually a low-income student.
“My family wouldn’t be considered ‘low-income,’ but I think that individually, I would be,” Sherwin said. “I think as students, it’s an issue that all of this is based more on our families’ financial status and less on ours. My family doesn’t help me financially, but the government doesn’t know that.”
However, Price said that this plan is not necessarily about fairness.
“This is about equity, not equality,” Price said. “This is a good start for all students. This is just putting everyone on the same footing.”
However, some low-income borrowers can consolidate their loans into an Income Driven Repayment-eligible loan.
IDR loans are designed to make college more accessible for low-income students. These loans limit monthly debt payments to 10-15% of the student’s income – or what they earn above 150% of the federal poverty level. If they earned less than 150% of the poverty line, no payment would be required.
These changes will be applied automatically, although they may not be in effect in some accounts until the final months of 2022. This plan targets people who are already on their way to loan forgiveness, a far cry from Sen. Bernie Sanders’ (I-Vt.) plan to wipe out all or part of student loans completely.
These plans also do not automatically reduce a student’s debt – in fact, they may owe more if the monthly payment is less than the interest accrued. But it does allow for loan forgiveness if the student keeps up with their payments for 20 years after enrolling in an IDR plan for undergraduate loans. Loans for graduate students require a bit longer than undergraduate loans, with a payment plan lasting 25 years.
“Even as a student who doesn’t technically qualify as ‘low-income,’ it’s daunting to know that I will be paying back my student loans for years to come,” Sherwin said. “I have heard stories of adults who can’t have children or pursue their dreams because they are drowning in student loan debt. It’s a very real issue.”
Price also said that student loans can be overwhelming, especially for low-income students.
“Student loans and interest rates have become predatory, making them almost impossible to pay off quickly,” Price said. “I do think that reducing loan payments is going to be much more helpful but reducing the fixed interest rate is becoming much more necessary for erasing student debt.”
In theory, that’s how the system is supposed to work. But it doesn’t always play out that way in practice. In reality, some borrowers enrolled in IDR plans end up paying more over a longer period of time due to mistakes made in tracking repayment history. These borrowers have been denied credit for months or even years of repayment.
“This brings a lack of trust into the equation when it comes to government systems,” Sherwin said. “These things greatly impact the lives of U.S. citizens. It’s really a shame that the government can’t seem to get it right.”
To address these issues, the Federal Student Aid Office will do a one-time revision of IDR loan plans to give borrowers credit for the discrepancies in the months they made payments, including before they consolidated their loans into an IDR. They will also receive credit for any time before 2013 where their loans were deferred due to economic hardship.
Borrowers’ loans will be canceled completely if the revision brings borrowers up to the number of payments required for loan forgiveness – usually 240-300 monthly payments.
The Education Department also said it plans to keep better record of payments in the future. But to some, this is hard to believe.
“When it comes to real issues that affect citizens’ lives, I am sick of the government messing up and promising to do better in the future,” Sherwin said. “If we are being honest, this rarely happens. History tends to repeat itself.”