The federal Department of Education recently announced details regarding President Biden’s long-awaited student debt plan. The plan is expected to cut the monthly payments of millions of student debtors by more than half. The regulations proposed by the Ministry of Education amend one of the existing reimbursement plans known as REPAYE (Revised Pay as You Earn). The plan ties debtors’ monthly payments to income and family size. Unlike Biden’s plan, which canceled up to $20,000 of federal debt at a time and faced a series of legal battles, the new repayment plan is a long-term piece of the student loan infrastructure and applies to current as well as future borrowers.
It is unclear when the new plan will be formulated and implemented. After listening to public opinion for 30 days, the administration plans to come up with specific plans that reflect the feedback and finalize the plan by the end of this year.
Parents who received money through Parent PLUS loans to help pay for their children’s school expenses cannot enroll in the new plan. This means that if parents can’t afford repayment, the only option they usually have is an income-based repayment plan, which is the most expensive. Known as an income-contingent repayment, this is a plan in which the debtor pays off 20% of his or her discretionary income as repayments over 25 years, after which the debtor is forgiven.
The revised REPAYE plan is more lenient in several respects. First, the plan reduces undergraduate loan payments to 5% of discretionary income. 10% for existing plans (15% for other plans).
Under current REPAYE, discretionary income is income that exceeds the protected amount, which is set at 150% of the federal poverty line. not a lot of money A single debtor will start a situation on income over about $20,400 ($41,600 for a family of four).
The revised plan raised the amount of protection against reimbursement to 225% of the federal poverty line. That means people earning less than 225 percent of the poverty line—that is, people working on a minimum wage of $15 per year—don’t have to pay back. In other words, singles making less than $30,500 or families of four making less than $62,400 would have $0 repayment.
If you can’t afford a standard repayment plan, you can consider an existing income-based repayment plan, such as REPAYE. By choosing this plan, you can benefit from a lower repayment amount when the new plan replaces the old plan.