Biden administration’s student loan plan could halve some payments

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The U.S. Department of Education on Tuesday proposed regulations that would lower monthly bills for certain federal student loan borrowers.

Under the proposal, President Joe Biden’s administration would overhaul one of the existing ones income-based repayment schedulesknown as Revised Pay As You Earn or REPAYE, which caps borrowers’ bills to a percentage of their discretionary income.

“We cannot go back to the same broken system that we had before the pandemic, when a million borrowers a year defaulted on their loans and interest rates left millions owing more than they originally borrowed,” said US President Education Minister Miguel Cardona in a statement.

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The new REPAYE plan would cut monthly commitments by up to half, according to a data sheet from the education department. A typical four-year public university graduate could save about $2,000 annually under the new plan, it says.

Currently, the cheapest earnings-related repayment plan requires borrowers to pay 10% of their discretionary income toward their student debt each month. This change would lower that cap to 5%.

According to higher education expert Mark Kantrowitz, the plan should officially be available on July 1, 2024, but some parts of it could be implemented earlier.

Payment schedules based on the income of student loan borrowers date back to the mid 1990’s. They offer an alternative to the standard amortization schedule, which spreads debt obligations evenly over a decade or 120 months. Income-based plans typically trade lower payments for a longer repayment period, with the remaining balance being waived.

The Biden administration is no longer accepting student loan debt relief requests

Future of student loan origination uncertain

Two of those challenges have at least temporarily prevented the Biden administration from going ahead with its plan.

The Biden administration insists it is acting within the law, noting that the Heroes Act of 2003 gives the US Secretary of Education the power to make changes related to student loans in national emergencies. The country operated andnder an emergency declaration due to Covid since March 2020.

The government also says the public health crisis has inflicted significant financial damage on student loan borrowers and that its debt relief is necessary to stave off a historic spike in arrears and defaults. Biden administration’s student loan plan could halve some payments

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