New student loan plan faces funding crisis over debt relief The Office of Federal Student Aid has a lot on its plate in 2023, including implementation of an ambitious new student loan repayment plan. Now it just needs money to pay for it.

Exclusive: New Biden student loan plan unveiled amid agency funding crisis

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DWANE BROWN, HOST:

The Biden administration is unveiling a generous new student loan repayment plan today. Most current and new federal student loan borrowers will be eligible for the plan, and it could especially help low-income borrowers.

LEILA FADEL, HOST:

But there's a catch. The agency tasked with implementing the plan might not have the money to pay for it.

BROWN: That's right. NPR's education correspondent, Cory Turner, joins us. He's been covering this story. First, Cory, good morning. And what can you tell us about this new repayment plan from the Biden administration?

CORY TURNER, BYLINE: Yeah, good morning, Dwane. It is a big rewrite of a previous plan that will mean $0 loan payments for anybody who earns less than $30,000 a year. Folks who borrowed $12,000 or less would receive loan forgiveness after 10 years of payments. That's new. Borrowers will also no longer see interest explode their balances over time. But there are two challenges to this rollout. One, the regulatory rewrite process could take some time, you know, well into 2023. And, two, there is the cost to implement it, which is unclear. What is clear is when the plan does roll out, the Office of Federal Student Aid is going to have to cut something else to pay for it.

BROWN: Yeah, unclear the cost to implement. So why is that? Why doesn't the federal government have the money?

TURNER: So the Office of Federal Student Aid, or FSA, it's a really small agency, relatively speaking, but it has a Herculean job of managing the U.S. government's entire federal student loan portfolio. And it's in a sudden budget crisis. I spent the past few weeks talking about this with officials across government who were not authorized to talk to me - eight people in all. We talked about how this happened and how officials at FSA are right now behind closed doors really frustrated and scrambling to figure out how to cut hundreds of millions of dollars in spending. And what happened, Dwane, is that last month, when Congress and the White House agreed on this massive government funding bill for 2023, the omnibus, there was a fight over FSA's budget.

So sources tell me while Republican negotiators did float a roughly 20% increase for FSA, they wanted the White House to put in writing that the money would not be spent on implementing the big debt relief plan that's currently on hold at the Supreme Court just in case the court allows it to proceed. The problem is, according to Democrats, both sides had agreed not to add new conditions like this to the omnibus. They're called riders. So when Republicans insisted on a debt relief rider anyway, Democrats said, look, you agreed to the deal, no new riders. We're sticking to it. What matters most to borrowers, in the end, they failed to compromise, and FSA did not get a dollar more than the budget amount they got last year.

BROWN: Wow. Cory, we're talking about the Office of Federal Student Aid, or FSA. As it relates to them cutting to save money, where are we at there?

TURNER: Yeah, so FSA can find a way to pay for this big, ambitious new repayment plan. But borrowers could and will see cuts or delays to other student loan reforms supposed to happen this year. You know, there's a big review and update of millions of borrower records in July that could be delayed. It's currently revamping the FAFSA student aid form to make it easier for families to complete. That's probably untouchable. There could be a delay in new contracts for loan servicers. I'm also hearing basic functions could be hit. You know, borrowers might spend a lot more time on the phones.

BROWN: That's NPR's Cory Turner. Thanks, Cory.

TURNER: You're welcome, Dwane.

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