The Biden administration is proposing to lower the cost of monthly student loan bills under a certain type of income-driven repayment (IDR) plan that for some borrowers will amount to $0 per month.
The Department of Education announced Tuesday that under the proposed changes, those making less than roughly $30,500 annually would have $0 monthly payments. The same criteria would apply to a borrower in a family of four that makes less than $62,400. The plan does not apply to Parent-PLUS loan borrowers.
For those who earn above those thresholds, the administration calculates that undergraduate borrowers could see their monthly payments also cut in half by requiring that 5 percent of their discretionary income be paid toward their student loans instead of the existing 10 percent.
The proposed changes to the Revised Pay As You Earn Repayment Plan (REPAYE), one of four types of IDR plans, also includes a mechanism to shorten the time frame to qualify for student loan forgiveness, essentially shaving off the time it takes to pay off an entire loan.
For example, students who have an original principal balance of $12,000 or less could qualify for loan forgiveness after 10 years of payments on such an IDR plan, instead of 20 to 25 years. Every $1,000 above a $12,000 original principle would add another year of monthly payments before forgiveness could apply.
The plan also intends to address interest accumulated on student loans.
The department said that under the proposed plan, payments made under the amended REPAYE program would first be applied to interest but if the monthly payment amount approved by the program does not cover the interest in full, any remaining interest would not be charged. This extends existing benefits under such an IDR plan in which borrowers have at least half their interest paid per month.
Education Secretary Miguel Cardona said in a statement the plan intends to fix a “broken system” that left millions borrowers in default on their loans before pandemic-era regulations were put in place to pause interest accrual and some types of monthly student loan payments.
“We cannot return to the same broken system we had before the pandemic, when a million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed,” Cardona said.
“These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness, so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families,” he added.
A senior administration official said there is not yet a timeline of when the proposed rule to amend the REPAYE program could go into effect but expects it to be finalized later this year. It next goes to public comment for 30 days.
The department also announced Tuesday it would be seeking public comment on a regulatory proposal that would allow the administration to make a list of colleges and programs that put students in significant debt that don’t have financial value.
Source: The Hill
Be First to Comment