The plan would reduce student debt payments by millions and offer much more generous terms to keep debt from piling up.

WASHINGTON — The White House is moving forward with a proposal it will reduce student debt payments for millions of Americans now and in the future, offering a new way to repay federal loans on much more generous terms.

President Joe Biden announced the repayment plan in August, but it was overshadowed by his sweeping plan to reduce or eliminate student debt for 40 million Americans. Still, despite its low fee profile, some education experts see it as a more powerful tool to make college affordable, especially for those with lower incomes.

Education Department officials on Tuesday called the new plan a “student loan safety net” that would prevent borrowers from becoming overwhelmed with debt.

“Student debt has become a dream killer,” said Education Minister Miguel Cardona. “It’s a promise to the American people that we’re finally going to fix a broken system and make student loans affordable.”

Biden, a Democrat, is moving forward with a repayment plan even as he faces a one-time debt write-off uncertain fate before the Supreme Court. The White House asked the court to uphold the plan and dismiss two legal challenges from conservative opponents. The Biden administration submitted its brief last week, and oral arguments are scheduled for February 28.

The Education Department formally proposed the new repayment plan Tuesday, publishing it in the Federal Register, kicking off a public comment period that often takes months to navigate.

What’s in the plan?

If completed, the proposal would lead to a major overhaul of income-driven repayment plans, one of several payment options offered by the federal government. The resulting plan will have lower monthly payments, an easier path to forgiveness and the promise that unpaid interest will not be added to the borrower’s loan balance.

The federal government now offers four types of income-driven plans, but the proposal essentially eliminates three of them, focusing on one simplified option, reducing the confusing array of options borrowers now face.

Under existing plans, monthly payments are capped at 10% of the borrower’s discretionary income, and those making less than $20,400 a year are not required to make payments. The new proposal would cap student loan payments at 5% of borrowers’ earnings, cut their bills in half and require payments only for those making more than about $30,000 a year.

As long as borrowers make monthly payments, unpaid interest will not be charged. The change is designed to prevent borrowers from having unpaid interest added to their loan balances, which can cause debt to grow even as borrowers make payments.

Notably, the proposal would also make it easier to discharge debt after several years of payments. Existing plans promise to cancel any remaining debt after 20 or 25 years of payments. The new plan will cancel all remaining debt after 10 years for those who took out loans of $12,000 or less. For every $1,000 borrowed over that, a year will be added.

The typical graduate of a four-year university will save about $2,000 a year over today’s plans, the Biden administration says, while 85% of community college borrowers won’t be out of debt within 10 years.

Supporters see the proposal as a significant step toward college affordability. Some say it’s so generous that it comes close to free community college, a campaign promise that Biden has pushed for but failed to follow through on.

Opponents on the right see the updated plan as an unfair handout with a high price tag. The Biden administration estimates the repayment plan will cost nearly $138 billion over a decade, with some critics putting it closer to $200 billion.

Even some on the left question the wisdom of the idea, saying it’s so generous that it effectively turns student loans into grants that don’t have to be paid back. That could force more students to borrow, they warn, and it could push colleges to raise tuition if they know students won’t be on the hook.

Still others urged the administration to abandon profit-driven payment plans altogether, calling them a failed policy. Critics cite federal report for last year finding that sloppy oversight of the program left thousands of borrowers with debts that should have been forgiven.

Cardona said his agency is working on other proposals that would hold colleges accountable if their students become overwhelmed with debt. One of the ideas that Biden has promoted is to warn the public about programs that burden graduates with debt.

The Department of Education on Tuesday began the process of achieving that goal by asking the public about the best way to identify “low-value” programs.

The Associated Press Education Team receives support from the Carnegie Corporation of New York. AP is solely responsible for all content.

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