President Joe Biden announced updates and released details this week to examine the REPAYE, the present income-driven repayment plan for federal student loan borrowers. In this plan, borrowers’ monthly payments are tied to their income and family size. After a particular number of years, borrowers get forgiveness for the remaining debt.
Mr. Biden announced the forgiveness of student debt of up to $20,000 in August 2022. But legal challenges hindered it. The new repayment plan would get established as the student loan infrastructure and apply to current and future borrowers.
The latest REPAYE update will be affordable. It aids as a better way to cope with the cost of higher education.
According to an Education Department press release, the recent REPAYE updates will be open for comment from the public for a month. Later this year, they will start to take effect.
Here’s what you need to know regarding the updates on President Biden’s student loan repayment proposal.
Reduction of monthly payments to $0 for low-income borrowers
According to an Education department fact sheet, the proposal reduces monthly payments for single borrowers getting less than $30,500 to $0. The same applies to any borrower in a family of 4 with a monthly income of less than $62,400.
No additional interest growth for those who qualify for a $0 monthly payment
The current REPAYE plan gets rid of the additional interest once the borrower applies for a monthly payment. To clarify, those who qualify for a $0 monthly payment won’t see any additional interest growing on their balances
Monthly payments will decrease under the new plan and pave a way for loan forgiveness
Undergraduate and graduate borrowers will benefit from the plan. Remaining loan balance forgiveness applies to existing borrowers on the REPAYE plan. Loan forgiveness is granted for undergraduate loans after paying 20 years of monthly payments. Whereas, for graduate or professional study loans after 25 years.
The forgiveness eligibility involves considering the borrower’s original loan. Those who borrowed $12,000 or less would have to pay ten years of monthly payments to be eligible for loan forgiveness.
For every extra $1000 you borrow above the $12,000 amount, a year of monthly payments is added before forgiving the balance.
Before and currently, just economic hardship deferments allow borrowers on income-driven repayment (IDR) plans to qualify for forgiveness. But with the proposed change, the borrowers who enter deferment for reasons such as military service or cancer treatment would earn credit for payments. As a result, they are eligible for forgiveness.
The new plan would also give borrowers a weighted average of credit for payments before consolidation. Therefore all the progress will remain intact.
Automatic enrollment in an IDR plan for borrowers with loans in default
The proposal aims for the automatic enrollment of borrowers who are at least 75 days behind on payments in an IDR plan. As a result, they can get the lowest monthly payment. As opposed to the past, when borrowers defaulted on their loans. The easy solution was to qualify the borrowers for lower or $0 payments on a different repayment plan.
Since March 2020, student loan payments have been on pause for most borrowers as a part of pandemic relief measures.