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.
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.
The proposal would reduce monthly payments to $0 for single borrowers making less than $30,500 and any borrower in a “family of four” making less than $62,400, roughly eat and eat Information sheet of the Ministry of Education.
The change will also prevent interest from building up on balances while qualifying borrowers for $0 monthly 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.
Borrowers in the current REPAYE plan are eligible to have any remaining balance forgiven after 20 years of regular payments. monthly for student loans or 25 years for graduate or professional loans.
Biden’s proposal would consider a borrower’s previous loan balance to determine eligibility for forgiveness. Those who borrowed $12,000 or less will be eligible for loan forgiveness after 10 years of monthly payments. Every $1,000 borrowed above that amount will add one year of payments before forgiveness.
In addition, the proposed change will allow borrowers who defer for various reasons, such as military service or cancer treatment, to still receive debt for payment forgiveness. Currently, only the postponement of economic hardship allows borrowers on the installment repayment (IDR) plan to continue their progress toward forgiveness.
Borrowers can also consolidate their loans without rescheduling their progress toward forgiveness. Meanwhile, borrowers in REPAYE plans who have their loans foreclosed lose any progress they’ve made toward forgiveness.
For example, a borrower who has made 100 monthly payments (out of the minimum required 240 monthly payments before the loan is forgiven) and then consolidates their loan must start over, according to the Federal Student Aid website.
The new plan will give borrowers a weighted average of debt for payments before consolidation, so they don’t lose all their progress.
The Department of Education has announced that in the past, many borrowers have had their loans canceled when they could have qualified for low or $0 down payments in another plan. pay back. The proposal aims to improve that by automatically enrolling borrowers who are at least 75 days behind on payments into an IDR plan that offers lower monthly payments.
Borrowers with bad credit can also get access to IDR plans. Currently, borrowers only have the option to refinance or consolidate loans in default.
Correction: This article has been updated to reflect that a borrower earning $25,000 annually would now owe about $38 a month. their loan. An earlier version misstated this amount.