US Lowers Student Loan Repayment Burden... Debt Forgiven After 10 Years of Payments

[Asia Economy Reporter Haeyoung Kwon] The U.S. government is significantly reducing the repayment burden for low-income borrowers with student loans. The plan also includes forgiving debt after repaying for 10 years. However, there are criticisms that student loan forgiveness could lead to moral hazard and shift the burden onto taxpayers.

According to the Wall Street Journal (WSJ) on the 10th (local time), the U.S. Department of Education is pushing to cut the repayment rate for those with student loans from the current 10% of monthly income to 5%, halving the rate.

Borrowers with incomes at or below 225% of the federal poverty level are exempt from monthly loan repayment obligations. The government estimates that those with an annual income under $30,600 or under $62,400 for a family of four will be exempt from monthly repayments. These borrowers will not accrue interest on the remaining balance even if they do not repay the loan.

Additionally, if the loan amount is $12,000 or less, borrowers who repay their loans for 10 years will have the remaining balance forgiven. Currently, borrowers must repay for 20 years to have their loans forgiven, so this period is reduced by half.

Previously, in August last year, the U.S. government first announced a plan to forgive up to $20,000 in student loans for those meeting certain criteria. However, due to various lawsuits, it has not been implemented and is currently awaiting court rulings. The U.S. government plans to finalize the proposal after a 30-day public comment period. The Deputy Secretary of Education stated, "We have created the first-ever student loan safety net in this country."

Criticism has also been raised that this government proposal shifts the cost of the student loan program onto all taxpayers. In the political arena, mainly Republican lawmakers oppose the plan, arguing that it could result in reverse discrimination against those who did not take out student loans or who have fully repaid them.

WSJ pointed out, "This change in the student loan repayment system will increasingly lead to large-scale debt forgiveness over time, resulting in significant costs."