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The Biden administration on Tuesday proposed a new plan that would lower monthly repayments for student loan borrowers in income-driven repayment (IDR) plans, allowing them to pay off some loans sooner. IDR plans are intended to be affordable, with monthly payments set according to the borrower’s disposable income and family size.
The announcement comes as the Supreme Court considers the fate of President Joe Biden’s student loan forgiveness plan. A decision could be made in the next few months after a judge heard the arguments in late February. It has been extended from June 30th to 60th, whichever comes first.
In a statement about the proposals, Secretary of Education Miguel Cardona said, “These proposed regulations would cut undergraduate borrowers’ monthly payments in half and create a faster path to forgiveness, so borrowers can helps us manage our repayments better, avoid delinquencies and defaults, and focus on building a brighter future for ourselves and our families.”
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What are the main changes?
change in incomeThe proposed regulatory change would amend the revised Pay As You Earn (REPAYE) plan to limit the amount of discretionary income borrowers must use to repay undergraduate student loans to 10% of their after-tax income. % to 5%. For borrowers with only graduate loans, the repayment amount remains at 10% for him.
Borrowers with both graduate and undergraduate loans will pay a rate of 5% to 10% based on a weighted average calculation of the original loan balance of the undergraduate and graduate loans. For example, a borrower with an undergraduate loan of $30,000 and a graduate loan of $30,000 pays 7.5%. On the other hand, a borrower with a $20,000 undergraduate loan and a $60,000 graduate loan will pay 8.75%.
High income deduction. Low-income borrowers will also receive relief. The proposed rule would exempt a borrower whose income is less than 225% of his federal poverty line (up from 150%) from paying the loan.
The government estimates that borrowers with an annual income of less than $30,500 or a family of four with an annual income of less than $62,400 will be eligible. Under the current REPAYE plan, 150% of the poverty line equates to approximately $20,400 in personal income.
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accrual of interest. The Department of Education’s new rule also prevents unpaid interest from accumulating if borrowers make regular payments. Some borrowers currently enrolled in an IDR plan are paying less for their overall loan despite making monthly payments because the amount they are required to pay under the plan is less than the amount of interest accrued each month. Your balance is increasing. The agency estimates that 70% of his borrowers enrolled in existing IDR plans have increased their balances since enrollment.
Loan forgiveness. The number of monthly payments required for loan forgiveness is less for borrowers with smaller balances. Currently, borrowers’ loan balances are forgiven under IDR plans after making 20 or 25 years of payments depending on which plan they are enrolled in.
Under the new rules, borrowers who take out student loans totaling $12,000 or less may have their remaining balances forgiven after 10 years. For every $1,000 he borrowed beyond that threshold, plus he repays one month more. For borrowers with larger balances, the forgiveness threshold remains 20 years for undergraduate loans only and 25 years for those with graduate loans.
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automatic registration. The Ministry of Education will also begin automatically enrolling borrowers who are 75 days in arrears with the IDR plans with the lowest monthly payments, depending on the circumstances. Similarly, a borrower who has defaulted on a student loan will be given access to her IDR plan with more affordable monthly payments and a path to loan forgiveness.
Additionally, the proposed rule would not reset the repayment period required for forgiveness after a borrower consolidates student loans, as current options require.
tolerant deploymentIt would also increase borrower loan forgiveness opportunities by giving borrowers deferment or grace period credit for periods that previously did not count towards the forgiveness threshold. Under his current IDR options, only deferred financial hardships count towards the time of forgiveness.
The new rule expands it to include deferrals and graces covered under the Public Service Loan Forgiveness Program, such as:
- Postponement of cancer treatment,
- tolerance of national service,
- deferment after active service, and
- Forgiveness related to National Guard duty or under the Department of Defense Reimbursement Program.
Borrowers with other types of deferrals or reprieves can make catch-up payments to get back on their way to loan forgiveness.
What’s next for the rules?
The proposed rule will be published in the Federal Register on Wednesday, along with a request for information, according to the Department of Education. This opens a 30-day window for the public to comment on either document through the Regulations.gov website.
Later this year, the Department of Education will finalize rule changes and begin implementing the policy after it may make changes based on public comment.
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