The Biden administration rolled out a new proposal for federal student loan borrowers to lower their monthly payments. Borrowers could expect their monthly payments to drop by half.
The U.S. Department of Education proposed regulations last Tuesday to reduce the monthly bills of federal student loan borrowers. Student debts have become a burden to some households which pushed borrowers to enroll in income-driven repayment plans that caps their monthly bills to make their debt more affordable to pay off. When the plan becomes available, borrowers could see their bills decrease by as much as half.
The administration would remodel the existing income-driven repayment plans also known as Revised Pay As You Earn or REPAYE.
How does the new proposed plan differ from existing ones?
Currently, there are four income-driven repayment plans namely: the Income-Contingent Repayment Plan, the Income-Based Repayment Plan, the Pay As You Earn Repayment Plan, and the Revised Pay As You Earn Repayment Plan. These plans give options for student borrowers in paying off their debt.
According to a fact sheet from the Education Department, the new REPAYE plan under the Biden administration would decrease the monthly payments of the borrowers by as much as half. This means that a student who graduates from a four-year public university could save as much as $2,000 annually.
Usually, 10% of their discretionary income is charged to borrowers but under the new proposal, they will be charged just 5%. After 20 years of paying undergraduate student loans, the remaining debt will be canceled while those with original student loan balances of $12,000 or less may have their loans forgiven after 10 years.
Who will qualify for the new REPAYE plan?
The new option will be available to borrowers with undergraduate and graduate student loans but those with Parent Plus loans won’t be eligible.
When will the option become available for borrowers?
According to higher education expert Mark Kantrowitz, the new REPAYE plan will be officially available on July 1, 2024, since the proposed regulation still needs to go through a 30-day public comment period.
When the plan will become available, borrowers can contact their student loan servicer to enroll in the new REPAYE option proposed by the Biden administration or apply at StudentAid.gov.