What to Know About Biden’s Student Loan Repayment Proposal
Does this updated plan mean others will shut down?
Yes.
In the past, new repayment plans didn’t lead to the shuttering of older ones, which is why there’s a confusing assortment of options on the books. (The amended REPAYE plan is generally more affordable than the four other (!) existing plans, including PAYE, I.C.R. and I.B.R., which comes in two versions.)
But the Biden administration said it wanted to simplify the choices so that borrowers weren’t overwhelmed: It proposed phasing out new enrollments into the Pay as You Earn (PAYE) and income-contingent repayment (I.C.R.) plans, while limiting the circumstances where a borrower can later switch into the income-based repayment (I.B.R.) plan.
Borrowers with Parent PLUS loans, however, will not lose access to the I.C.R. repayment plan, according to senior administration officials. They can continue to enroll in that plan after they consolidate into a so-called direct consolidation loan.
How does the new I.D.R. plan work?
First, some quick background: All income-driven plans generally operate in the same fashion. Payments are calculated based on your earnings and household size, and are readjusted each year. After monthly payments are made for a set number of years — usually 20 — any remaining balance is forgiven. (The balance is taxable as income, though a temporary tax rule exempts balances forgiven through 2025 from federal income taxes.)
The revised REPAYE plan would become more generous in several ways.
To start, it would reduce payments on undergraduate loans to 5 percent of discretionary income, down from 10 percent in the existing REPAYE plan (and 15 percent in other plans).
Graduate debt is also eligible, but borrowers would pay 10 percent of discretionary income on that portion. If you hold both undergraduate and graduate debt, your payment will be weighted accordingly.
But the new rules also tweak the payment formula so that more income is protected for a borrower’s basic needs, which in turn reduces payments overall. That change will also allow more low-income workers to qualify for zero-dollar payments.
Article source: https://www.nytimes.com/2023/01/10/your-money/student-loans-income-driven-repayment.html