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What is Joe Biden’s new plan to cut undergraduate student loan payments in half?

The Department of Education has announced a new proposal by the administration to make student loan repayments “more affordable and manageable.”

White House presents new student loan repayment plan

“The Biden-Harris administration is proposing historic changes that would make student loan repayment more affordable and manageable than ever before,” Secretary of Education Miguel Cardona said in a statement announcing the White House’s plan. The changes, if enacted, will reduce monthly payments for borrowers, to zero for those that meet the income requirements. At the same time, it will prevent unpaid interest from accumulating as long as repayments are made on time.

It will also shorten the amount of time that borrowers need to make monthly payments to as little 10 years before an outstanding debt is cancelled. This could be the case for 85 percent of community college borrowers after entering repayment according to the Department of Education.

“We cannot return to the same broken system we had before the pandemic, when a million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed,” said Cardona. “These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness, so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families.”

You may also be interested in: When will the Supreme Court decide on the student debt forgiveness plan?

Reduced monthly student loan payments

The new plan from the White House will amend the terms of the Revised Pay As You Earn (REPAYE). The proposed regulations would increase the amount of income protected from repayment from 150 percent of the Federal poverty guidelines to 225 percent. That level is roughly the equivalent of a $15 hourly wage based upon the 2022 guidelines for a single borrower working fulltime.

So, a single borrower earning less than $30,500 would have their monthly payments reduced to zero dollars. The same would be true for a borrower in a household of four with an annual income below $62,400. Under the most generous current income-driven repayment (IDR) plans the amounts are around $20,400 and just above $41,600 respectively.

Additionally, under the new plan, the amount that borrowers would be required to pay above the increased level of 225 percent would be half of the most generous IDR plan reducing payments on loans borrowed for undergraduate studies to just five percent of discretionary income. To ensure that borrowers enrolled in these repayment plans don’t continue to see their balances grow month after month, the new regulations would stop unpaid interest from accumulating after monthly payments are made. That includes those who qualify for zero-dollar monthly payments.

You may also be interested in: How can I get my student loan completely forgiven?

Faster path to student loan debt forgiveness

Under current IDR plans, regardless of the amount borrowers owe in student loan debt, a balance can be canceled after 20 years for undergraduate loans and 25 years for graduate loans. The new regulations seek to slash the amount of time borrowers are beholden to their student loan debt.

Those enrolled in income-based repayment plans whose original loan balances were $12,000 or less will have the outstanding amount cancelled after 10 years of payments. One year will be added for every $1,000 above that threshold to achieve debt forgiveness.

According to the Education Department, this measure will be particularly beneficial to borrowers who took our federal student loans to attend community college, making 85% of them debt free within 10 years of entering the repayment program.

All federal loans acquired for undergraduate degrees will be forgiven after 20 years of payments, and 25 years of payments for graduate degrees.

Another proposal would automatically enroll borrowers that are at least 75 days behind on their payments into the IDR plan which would give them the lowest possible monthly payment. It would also give access for borrowers that have entered default to IDR plans, giving them access to a more affordable plan and put them on a path to debt forgiveness.

The proposed rules must go through a 30-day public comment period. At the end of the 30 days, the department can release a final rule.


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