President Biden just announced student loan repayment—here’s what borrowers need to know

The Biden Administration released details this week on its plan to revise the Revised Pay As You Earn plan (REPAYE) for federal student loans.

Last August, President Joe Biden announced that these changes were coming student loan forgiveness up to $20,000 for borrowers with less than $125,000 annually, which is currently suspended pending a Supreme Court decision.

All student borrowers with federal direct loans (not parent PLUS loans) are eligible for REPAYE repayment plans. Details on REPAYE will be open for public comment for 30 days and may go into effect later this year, according to a Ministry of Education announcement.

These things are scheduled to change.

Monthly payments are reduced to 5% of the prescribed income

Under the current REPAYE plan, borrowers’ monthly payments are capped at 10% of their discretionary income, defined as an income above 150% of the total guidelines for their state.

Using 150% of the federal poverty line – $20,400 – a single borrower earning $25,000 each year can expect to pay about $38 per month on their loans, or about $460 a year.

However, under the draft plan, premiums will be capped at 5% of gross income and the gross income threshold will rise to 225%. of poverty. Federally, this is about $30,500 for single families.

$0 monthly payment for low-income borrowers

No interest accrues while making regular payments

Under the current REPAYE plan, borrowers’ monthly payments are sometimes lower than the interest accrued on the loan. This means borrowers can still see balances grow even if they make full, on-time payments. The government currently funds some of the accrued interest, but not all.

The proposed change will eliminate the additional interest after the borrower’s monthly payment. This means borrowers who qualify for $0 each month will not see interest added to their balance.

Easy way to get loan forgiveness

Automatic enrollment for those at risk

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