Preston Cooper is a senior fellow at the American Enterprise Institute
President Donald Trump entered office intent on reversing most of the Biden administration’s student loan forgiveness agenda, and his administration has generally lived up to that goal.
In December, the Education Department settled a lawsuit against the Saving on a Valuable Education program, commonly known as the Save plan, President Joe Biden’s loan repayment scheme that set monthly payments for borrowers as low as $0 and canceled their balances after a certain period. Shortly afterward, the department announced it would restart wage garnishment, meaning that borrowers who defaulted on their loans could have seen up to 15 percent of their paychecks withheld to cover the overdue balance. The message seemed clear: Student loan forgiveness is dead.
It was a surprise then, that earlier this month the administration suspended involuntary collections on defaulted student loans. Those looming wage garnishments that some borrowers were dreading are off the table for now. The Treasury Department was also poised to seize defaulted borrowers’ tax refunds to pay their student loans. That plan is also on hold, at least until the upcoming filing season is over.
Some have interpreted the suspension of collections as the administration backtracking on its campaign against student loan forgiveness. True, administration politicos nervous about their chances in the upcoming midterm elections might have cold feet about grabbing millions of defaulted borrowers’ tax refunds. Those of us who want the student loan system to return to normal after the extended pandemic-era repayment moratorium, rather than hemorrhage billions of dollars per month as borrowers continue to skip payments, should be worried that this attitude might continue to prevail.
But there’s another way to read the policy shift. Delaying collections gives the administration time to complete work they’ve already begun: Building a brand-new student loan repayment system that will help borrowers get out from under their debt faster and in the long run obviates the need for loan forgiveness entirely.
Standard student loan repayment plans may carry high monthly payments, amounts that are often difficult for young people to afford at the beginning of their careers when their earnings are lowest. In the past, the government has addressed this problem with income-driven repayment plans, which tie payments to earnings. But this can reduce payments below accrued interest, so borrowers who keep up with their payments can still see their balances rise. Social media is replete with stories of frustrated borrowers who say they’ve made payments for years, only to owe more than they did when they started. Feeling betrayed, some give up paying completely.
Trump’s One Big Beautiful Bill includes a provision that solves this problem. The law created the Repayment Assistance Plan (RAP), which replaces most existing repayment plans and launches on July 1.
RAP preserves the income-contingent nature of previous plans — payments still rise and fall with the borrower’s earnings — but it includes safeguards to prevent rising balances. If a borrower’s payment doesn’t fully cover interest, RAP waives any remaining interest. The government also credits principal balances up to $50 for each on-time payment. The upshot is that if borrowers keep up with their payments, RAP guarantees they will pay down their balances over time.
For example, consider a borrower whose payment is $50 but faces monthly accrued interest of $125. Under a normal repayment plan, their balance would rise by $75 every month. Under RAP, the unpaid $75 in interest is waived. The government also matches her $50 payment and applies it as a credit to her principal. Instead of rising, this borrower’s balance falls by $50.
This isn’t loan forgiveness. Unlike Biden’s Save plan, no RAP borrower can get a $0 payment, but it does ensure that borrowers who make a good-faith effort to tackle their loans can pay down their balances faster. According to my analysis for the American Enterprise Institute, a typical college graduate using RAP will repay her loans in full after just 11 years. Under Save, such a typical borrower would carry the debt for 20 years before getting it forgiven at public expense.
As the administration prepares to roll out RAP, the delay in collections makes more sense. By setting affordable payments and preventing runaway interest accumulation, the program can help many of the 12 million borrowers who are behind on their student loans. Before seizing tax refunds and garnishing wages, the Education Department and its contractors can offer RAP as an inducement for defaulted borrowers to start voluntarily paying their loans again. But the administration needs time to implement the new plan — hence the suspension of collections.
For the Biden administration, the answer to every problem in the student loan system was forgiveness — which proved expensive, divisive, and illegal. By contrast, the Trump administration has pioneered a more thoughtful approach to reform. For taxpayers, protection from mass loan cancellation. For borrowers, the promise of a light at the end of the tunnel.
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