Nearly 40,000 Iowans have enrolled in Biden’s new student loan repayment plan

Nearly 40,000 Iowans have enrolled in President Joe Biden’s new income-driven repayment plan that promises a lower monthly bill and a shorter path to loan forgiveness, the White House announced Tuesday.

The initiative faces mounting Republican resistance, including from Iowa’s two Republican U.S. senators.

In all, more than 4 million student loan borrowers had signed up for the program since its soft rollout July 30. The Saving on a Valuable Education (SAVE) plan officially launched Aug. 22, ahead of expiration of the pandemic pause on payments and interest at the end of September. When borrowers resume making payments in October — some for the first time ever — many could see a lower payment, or even no payment, White House officials said.

The majority of those who enrolled in SAVE were previously enrolled in a different repayment plan, the Revised Pay As You Earn (REPAYE), and automatically transferred.

Borrowers will be able to apply on an ongoing basis, but are encouraged to do so soon before they are required to make a payment in October.

“We’re not just lowering payments for today’s borrowers,” U.S. Under Secretary of Education James Kvaal told reporters Tuesday during a White House press call. “We’re making paying for college more affordable for millions of future students. This is about making the American dream more attainable.”

More than 40 million Americans collectively owe more than $1.7 trillion in student loan debt, making it the second-highest consumer debt category — second only to mortgage debt and surpassing auto loans and credit card debt.

The Biden-Harris administration boasts the income-driven repayment plan will cut federal student loan borrowers’ payments in half and get more low- and middle-income borrowers closer to forgiveness faster.

The Department of Education estimates that more than 1 million additional low-income borrowers — a disproportionate number of whom are Black, Hispanic or members of other minority groups — will qualify for no monthly payment, allowing them to focus on food, rent and other basic needs instead of loan payments.

The plan calculates payments based on a borrower’s income and family size rather than how much they owe, and is designed to help borrowers reduce their monthly payments, limit how much interest can add up over time and lower the overall amount that must be paid back over a borrower’s lifetime.

The plan caps payments at 5 percent of discretionary income beginning next July for borrowers with undergraduate federal student loans, compared with a 10 percent cap on other U.S. Department of Education income-based repayment options. Those with graduate loans will pay a weighted average between 5 and 10 percent of their income based on the original principal balances of their loans.

Discretionary income is defined as the difference between one’s adjusted gross income and 225 percent of the federal poverty line as determined by a family’s size — about $32,800 for an individual and $67,500 for a family of four.

Those who make less than $15 an hour will not be required to make monthly payments. Borrowers who earn more are projected to save about $1,000 a year on their payments compared to other U.S. Department of Education repayment options based on income

And balances won’t grow because of accruing interest as long as borrowers stay on top of their payments, according to White House officials. A borrower who owes $50 in accumulating interest every month but just $30 per month under SAVE, for instance, will not be charged the remaining $20 as long as they keep up with her payments.

About 70 percent of borrowers on income-driven repayment plans before the pandemic-related pause are expected to benefit from the change, according to the Department of Education.

Borrowers whose original principal balances were $12,000 or less will see their loans forgiven once they’ve made 120 payments. Under other income-driven repayment options, borrowers who only attended for a semester were subject to 20 or 25 years of repayments before being eligible for relief.

The Biden-Harris administration estimates than 20 million low-income borrowers stand to benefit from the student loan repayment program.

In total, the Biden administration has forgiven more than $117 billion in student loan debt for 3.4 million borrowers, including for borrowers who were defrauded by their schools or experienced sudden school closures, those who became permanently disabled, those enrolled in a public service repayment program and other income-driven repayment plans whose debts were not serviced accurately.

Iowa GOP U.S. Sens. Chuck Grassley and Joni Ernst joined a group of 14 Republican lawmakers to scrap the Biden Administration’s loan repayment plan. The lawmakers call it a backdoor scheme to student loan forgiveness after the U.S. Supreme Court in June overturned a loan forgiveness plan announced by Biden last year.

In Iowa, 264,000 borrowers applied for or were deemed automatically eligible for forgiveness as of January, according to the White House, before the program was halted and subsequently struck down by the Supreme Court. Of those, 169,000 applications were fully approved. The White House estimated last year that more than 430,000 Iowa borrowers would have been eligible for the forgiveness.

The plan would have applied to borrowers making up to $125,000 or married couples making up to $250,000. It was expected to cost around $400 billion, the most expensive executive action in history.

Ernst and Grassley joined their GOP colleagues to introduce a Congressional Review Act resolution, which allows lawmakers to overturn rules issued by federal agencies. The resolution requires a simple majority in the House and Senate to pass. Biden, though, would almost certainly veto a measure attempting to undo the SAVE plan.

Ernst, Grassley and other lawmakers called the plan “reckless,” pointing to its estimated price tag, which ranges from $138 billion to more than $500 billion over 10 years — depending on how many borrowers enroll.

Republican lawmakers argue the new plan will encourage people to take on student loan debt and “turn the federal student loan financing system into a poorly targeted taxpayer-funded grant program” that is unfair to those who chose not to go to college and, therefore, didn’t incur student loan debt.

Ernst, in a statement, argued the plan will result in 90 percent of borrowers “receiving a taxpayer-funded bailout of a portion of their student loans.”

“President Biden is again trying to stick the working class with his student loan socialism scheme, and I’m standing up for Iowans who chose to go straight into the workforce or pay for their education,” she said.

She also called the plan an overreach by the Biden administration that ignores the constitutional separation of powers between Congress and the President.

Ernst said will continue to support and introduce legislation to provide transparency behind the true cost of college and allow students to easily compare financial aid packages between schools.

Grassley, in a statement, said “Iowans of all income levels, particularly low-income families” most impacted by inflation, “should not be forced to foot the bill for other people’s loans.

“We need to make education more affordable for students in a way that also helps restore fiscal sanity,” Grassley said. “My colleagues and I have introduced legislation to do that.”

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