The Biden Administration has just announced significant regulatory changes intended to reduce the cost of federal student loan payments for borrowers. The Education Department’s proposed rules would revise one of its existing income-driven repayment plans — known as REPAYE — in which borrowers’ monthly payments are tied to their income and family size, and after a set number of years, any remaining debt is forgiven.
The new repayment plan would become a permanent fixture of the student loan infrastructure and apply to current and future borrowers.
Comparing the Old REPAYE and New REPAYE Plans:
The current REPAYE plan requires an undergraduate borrower to pay 10% of income for 20 years until forgiveness. Notably, spousal income cannot be excluded if you are married, although that spousal income is applied proportionally if both spouses have loans. Additionally, borrowers may only deduct 150% of the poverty line before having to pay 10%.
The formula for the new REPAYE plan allows a borrower to pay 5% of income instead of 10% on undergraduate loans (graduate loans still require 10% of income). It also allows a borrower to file taxes separately and exclude his spouse’s income. The poverty line deduction jumps from 150% to 225%. The proposed regulations would also ensure that borrowers stop seeing their balances grow due to the accumulation of unpaid interest after making their monthly payments.
It’s not yet clear when the new program will be ready for borrowers or when payments will resume. Loan servicers and the Education Department will still need to update their systems after the rules are finalized, however borrowers who are already enrolled in the existing REPAYE plan will automatically be enrolled in the revised plan.
If you can’t afford the standard payment plan, you should probably consider one of the existing income-driven repayment plans, including REPAYE: Borrowers in this plan would benefit from lower payments after the revised program replaces the existing one. The loan simulator tool at StudentAid.gov will guide you through the existing options and help you decide which plan best fits your goals.
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