Any student loan borrowers could get $0 payments under Biden’s new plan
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in New student loan payment plan The proposal, floated on Jan. 10 by the Biden administration, could see more borrowers drop their monthly payments to $0.
The new option revises one of four existing income-based repayment plans, which cap borrowers’ bills for a share of their discretionary income with the aim of making debts easier to pay off.
Instead of being paid 10% of their discretionary income per month, under the Proposal, Revised Payment Plan, or reimbursementBorrowers will be required to pay 5% of their discretionary income towards their undergraduate student loans.
The new REPAYE plan may be officially available on July 1, 2024, according to higher education expert Mark Kantrowitz. This estimate represents a 30-day period for public comment on the proposed regulation and then a window before the new rules go into effect. But he said some parts of the plan could be implemented soon.
Here’s what borrowers need to know.
More people will get 0 USD
Under the current REPAYE plan, discretionary income is calculated as money earned over 150% of the federal poverty guidelines. Thus, individual borrowers would begin making payments based on income over approximately $21,900, based on 2023 GuidelinesKantrowitz said.
Under the new plan, Kantrowitz said, borrowers will not need to make payments based on earned income until it reaches 225% of the federal poverty guideline, or about $32,800.
Provide an example of how monthly billing would change with the fixed option.
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Previously, a borrower who made $40,000 a year had a monthly student loan payment of about $151. Under the revised plan, their payments will drop to $30.
Meanwhile, someone making $90,000 a year could see their monthly payments shrink to $238 from $568, Kantrowitz calculates.
Those earning less than $32,800 will have $0 per month.
Undergraduate borrowers benefit the most from change
The new option should be available to borrowers with undergraduate and graduate student loans, although undergraduate borrowers will have lower payments.
People with Parent Plus loans will not be eligible to enroll in the reformed plan.
Non-performing loans They usually don’t qualify for income-driven repayment plans.
However, under the new proposal, those who have been left behind may be able to sign up Income based payment planan income-driven payment plan option.
Borrowers will need to register
Once a new REPAYE plan is available, borrowers can contact the Student Loan Service to register for the option, or apply to StudentAid.gov.
said Scott Buchanan, executive director of the Student Loan Service Alliance, a trade group for federal student loan service providers.
There is a payment schedule of 10 or 20 years
After 20 years of payments on your college student loans, any remaining debt on your current REPAYE plan is forgiven. Revised Option maintains this schedule.
Additionally, under the Biden administration’s proposal, those with original student loan balances of $12,000 or less might have their loans forgiven after just 10 years.
Exempt student debt may come with a tax bill
It is unclear whether debts that are forgiven at the end of the repayment schedules will be taxable at the federal level.
Debt forgiveness is used to file a tax bill under income-driven payment plans. But A recent law ended this policy until at least 2025Experts predict that it will become permanent.
It is also possible some countries You would consider the debt that is exempt from taxable.
What happens if my payment plan is paused?
A pandemic-era relief policy that suspends federal student loan billing and interest accrual has been in effect since March 2020.
For now, the Ministry of Education has let things go a little open When it comes to timing of resumption of payments.
She said the bills will be due again only 60 days after the litigation over the student loan forgiveness plan is resolved and that she is able to begin getting out of debt.
If the Biden administration is still defending its policy in the courts by the end of June, or if it is unable to move forward with student debt relief by then, payments will be collected at the end of August, she said.
The Supreme Court will begin hearing arguments over legal objections to the plan Feb 28th.