New Tips for Student Loans – Terry Savage

A new proposal by the Biden administration would drastically cut monthly federal student loans in half, with monthly payments as low as ZERO for most borrowers, while eliminating the balance entirely. remaining for some borrowers after ten years of payments.

It is not like the first application that involved debt forgiveness, simply reformatting an existing earnings-based PAYE plan into a new “REPAYE” (revised-pay-as-e earner) plan ). Therefore, it cannot reach the Supreme Court, which will make a review at the end of February on the legality of the original $10,000 forgiveness plan.

Here are some of the highlights:
Current programs base payments on 10 or 15% of the borrower’s after-tax income. The new program will reduce this threshold to 5% of the borrower’s taxable income. In other words, the payments will be more than cut in half for many borrowers.

Currently, borrowers making less than 150% of the Federal Poverty Level (approximately $21,900) are eligible for the PAYE plan. Under the new REPAYE proposal, borrowers do not need to make payments until their income reaches 225% of the federal poverty guideline, or about $32,800.
Anyone with less than $32,800 in poverty is free each month.

But according to student loan expert Mark Kantrowitz, even those with higher incomes will save under the new rate. He explained that someone who earns more than $90,000 and is currently paying $568/month will see his monthly salary drop to $238.

And a borrower who earns $ 40,000 can see the monthly payment drop from $ 151 / month now to less than $ 30 / month!

As with the current programs, if you make 20 years of these new low payments, the balance will be forgiven. And for those with original loans of less than $12,000, and making regular payments under this plan, the loan will be forgiven after 10 years of payments. . For every $1,000 of additional original loan, the grace period is extended by one year.

There are other important features of the program:
• As long as the payment is made in time, no unpaid interest is added to the balance, eliminating the “snowball effect” of interest on the fourth interest. plus unpaid balances.
• Previously, household income was used to determine the funding requirements of these income-based plans. Currently, only the income from the actual borrower will be counted – a sigh of many married couples.
• As written, this new program does not apply to Parent Plus loans.
• Federal taxes are not recorded or applied on the amount forgiven, which is the current situation until 2025. And states can make their own tax decisions.

What is the government going to do with all this? Estimates reach $200 billion over 10 years. But that pales in comparison to the $1.5 trillion in unpaid student loans — many of which still carry initial interest rates of 7% or more, plus additional interest.
Many borrowers are stuck with not only high interest rates but debt consolidation which means they may have paid off their original loan – but still owe twice as much interest. payment!

Student loan expert Mark Kantrowitz said: “By ending the capital letters of accrued and unpaid interest, the new income repayment plan will keep loan balances from This has become a major source of anxiety for many borrowers, even though they know that the remaining debt will be forgiven in the end.”

And Rae Kaplan, a Chicago attorney who specializes in helping borrowers choose the best repayment plan, says that if the proposal works, most borrowers will still need it. the guide to coordinating their loans to take advantage of this transaction. Details have not been released.

This new proposal is not scheduled to take effect until July, 2024—subject to any legal or political challenges. Meanwhile, the forbearance of existing student loans, which does not require a payment, will continue until June 1, 2023 – or two months after the decision of the Supreme Court in the first amnesty program.

The government has been able to refinance its debt to reduce costs. Now is the time to adjust the student loan burden. And that is the Savage Truth.

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