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The Biden administration rolled out a new suggestion this week to slash monthly payments for some federal student loan borrowers.
If the revised earnings-related repayment plan becomes available, some people could see their bills fall by as much as half, according to the US Department of Education.
As student debt has become a greater burden on households, more borrowers have signed up for income-tested repayment plans dating back to the mid-1990s. These plans cap borrowers’ monthly bills to a percentage of their discretionary income with the goal of making their debt more affordable.
Between 2010 and 2017, the proportion of undergraduate borrowers the amount registered in the plans has swollen from 11% to around 25% and this percentage is still increasing.
Here’s what you need to know about the proposed plan.
Currently there is four earnings-based repayment plans (all of which sound very similar): the earnings-based repayment plan, the income-based repayment plan, the pay-as-you-earn repayment plan, and the revised pay-as-you-earn repayment plan.
The plans typically trade lower payments for a longer repayment period ending in debt relief, offering an alternative to the Standard Repayment Plan spread the debt obligations evenly over a decade or 120 months.
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Per the Department of Education’s new proposal, the agency will not create a fifth plan, instead revising the current revised Pay As You Earn repayment plan or PAY BACK.
Instead of charging borrowers 10% of their discretionary income per month, the proposal would only charge them 5%. After 20 years of student loan payments for students, any remaining debt is forgiven.
Those with original student loan balances of $12,000 or less can have their loans forgiven in as little as 10 years.
The new option should be available to undergraduate and graduate student loan borrowers, although undergraduate borrowers will receive lower payments.
Individuals with Parent Plus loans cannot enroll in the revised plan.
Defaulted Loans are typically not eligible for income-based repayment plans, but under the new proposal introduced this week, those who have fallen behind may be able to sign up for the plans income-related repayment schedule.
According to higher education expert Mark Kantrowitz, the new REPAYE plan could be officially available on July 1, 2024, but some parts of it could be implemented earlier. (The proposed regulation must go through a 30-day public comment period, and then there is a window before new rules can come into effect.)
Once the option is available, borrowers can call their student loan administrator to enroll in the new REPAYE option or submit an application at StudentAid.gov.
“Any new plan is likely to take some time to implement, so borrowers will have plenty of time to educate themselves about how it might work,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a federal loan servicing trade group student loans .
https://www.cnbc.com/2023/01/11/what-to-know-about-bidens-plan-to-cut-student-loan-payments-in-half.html What borrowers need to know about Biden’s student loan repayment schedule