- Biden proposed reforming the repayment plans for student loan borrowers.
- It includes cutting student fees in half, but the changes do not include parent PLUS loans.
- Here’s what you need to know about these changes.
Student loan forgiveness isn’t the only relief President Joe Biden hopes to enact for borrowers this year.
On Tuesday, Biden’s Education Department officially issued reforms to income-driven repayment (IDR) plans, which were designed to provide student loan borrowers with income-based monthly payments, and the promise of loan forgiveness loan after 20 years.
As shown in reports last year, plans rarely fulfill their promise. It’s an NPR research It found that some student loan companies failed to keep track of borrowers’ payments on plans, throwing them off the path to forgiveness, and often having to foreclose. Borrowers submit their applications to receive accurate information on where their payments stood.
According to these deficiencies, the Office of Education hearing a series of policy changes that included easing the way to loan forgiveness and cutting payments for student borrowers in half.
“Now the Biden-Harris administration is introducing historic reforms that will make paying off student loans more affordable than ever before,” the Secretary said. of School Miguel Cardona in a statement. “We cannot go back to the same system we were in before the pandemic, when a million borrowers defaulted on their loans a year and interest snowballed leaving millions in debt. more than they borrowed before.”
Here’s what you need to know about these proposed changes, and why some advocates are still pushing for more help.
Is Biden making a new IDR plan?
No – not entirely new. The Department of Education is revising the Revised Pay As You Earn (REPAYE) plan, the latest model to calculate the monthly salary of the team. loans based on their specific income and the promise of debt relief after a certain number of years of repayment.
This review means that the department will also terminate other parts of the income repayment plan. Borrowers will be disenrolled in Pay As You Earn (PAYE) and income-contingent repayment (ICR) plans, and limited if a borrower can switch to a repayment plan (IBR).
Who is eligible?
If you have a federal graduate or student loan, who qualifies for these changes.
How will my monthly payments change?
If your income is less than $30,500, or if you are in a family of four and your income is less than $62,400, you will be given the opportunity to pay $0 each month.
The reforms also cut student fees in half – the new plan will require them to pay 5% of their taxable income on their loans. of students, down from the current 10%. Borrowers with graduate school loans continue to pay 10%, and borrowers with graduate and undergraduate loans pay between 5 and 10%, based on the average rate from the student and graduate loan sector.
When will I get loan forgiveness with this plan?
According to the fact sheetsThe ministry said it is “concerned that low-income borrowers will be discouraged from using the current IDR plan – even though they will benefit from lower monthly payments – due to the length of the time it takes to get loan forgiveness.”
This is the reason for the department’s opinion, those who previously borrowed $12,000 or less, will receive a loan forgiveness after 10 years of payments. “Every additional $1,000 borrowed above this amount will add 1 year of monthly payments to the required time that the borrower must pay before receiving forgiveness,” said a the data sheet.
The department estimated that 85% of community college borrowers will be debt-free after ten years of repayment with this change.
What is the time frame for implementation?
These requests will enter 30 days of public information, and the senior official of the administration told reporters that the department plans to implement this year, with the plan of Biden cancels $20,000 in student loans for federal borrowers (currently going to the Supreme Court. on February 28).
In addition, Congress did not add funds for the Federal Student Aid office in its latest spending bill, highlighting the challenges that come with implementing these changes. The administration official said the department is frustrated with the lack of funds and noted that it will be a challenge.
What if I default or default on my loans?
The changes are also intended to help risky borrowers. The department plans to automatically enroll borrowers who are at least 75 days in arrears into an IDR program that will provide them with the lowest payment possible. each month. Defaulting borrowers will also, for the first time, have access to an IDR plan.
Who is excluded?
Parents who took out PLUS loans – a type of federal student loan that allows a parent to borrow the full cost of attendance for their child’s school – not included. A senior administration official told reporters Monday that the Higher Education Act of 1965 does not allow parent PLUS loans to be repaid on an IDR plan, and does not the department is making a change to that law.
Currently, parents’ PLUS loans are repayment-only – the most expensive type of plan – requiring them to pay 20% of their income for 25 years, and the balance of remaining after that period is forgiven.
The lawyers appreciated the improvement of the order but expressed displeasure with this exception. “It ignores the fact that low-income families—especially low-income families of color—are more likely to rely on Parent PLUS loans or need to earn a graduate degree to earn the same wages as their white peers. rich,” Persis Yu, executive vice president of the Student Borrower Protection Center advisory group, said in a statement.