Among several recent proposed changes by the Education Department, the new student loan repayment plan by the Biden administration aiming student borrowers could see their monthly payments drop to $0.
Among several recent proposed changes by the Education Department, the new student loan repayment plan by the Biden administration aiming student borrowers could see their monthly payments drop to $0.
Student Loan Forgiveness Update
The U.S. Department of Education proposed revisions to income-driven repayment (IDR) plans that could result in considerable cuts to loan payments. Some borrowers will have $0 monthly payments. Moreover, according to Student Borrower Protection Center (SBPC), IDR was originally designed to offer borrowers a lower monthly payment depending on their income, not their outstanding balance.
The ED-proposed regulations will amend the Revised Pay As You Earn Repayment (REPAYE) plan and phase out the three other existing IDR plans available to lower-income debtors Pay As You Earn Repayment (PAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) plans.
Borrowers participating in existing IBR, ICR, and PAYE plans will follow the new plan when enacted into law but will need to enroll through their student loan provider or the Federal Student Aid site. The new proposed regulations do not include changes to accommodate those holding Parent PLUS loans, which are not repayable on an IDR plan.
The $0 Monthly Payment Qualification
Student loan borrowers must make less than around $30,600 a year, while individuals in families of four make less than roughly $62,400, per the ED press release. For undergraduates, their payment obligations cut in half, as the new plan will revise the required discretionary income payment from 10% to 5%. Those bearing graduate loans will continue to pay 10%, and those with an existing mix of graduate and undergraduate loans will have to pay around 5% and 10%.
The current REPAYE plan calculates discretionary income as any money earned over 150% of the federal poverty guidelines, which are used to determine your eligibility for certain programs and benefits, according to CNBC. Under the new regulations, borrowers won’t be required to make payments based on income over 225% of the federal poverty guidelines.
The Biden administration is trying to correct what it deems is a flawed IDR plan system and a broader problem with never-ending debt payments. If legislated, the new REPAYE legislation would enable many borrowers with original federal student loans of $12,000 the opportunity to pay it off after 10 years. Maintained that borrowers who cross the 20 or 25-year of payments will be forgiven, as it is now under REPAYE plan rules.
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