The Biden administration has proposed a new scheme that would provide an income-driven repayment (IDR) plan for eligible borrowers.
On Tuesday the Department of Education announced the proposal clarifying that those earning below $30,500 annually would be able to have $0 monthly payments. Those who belong to a family of four, with an annual income of less than $62,400 would also be able to take advantage of this repayment plan. The plan will not apply to Parent-PLUS loan borrowers.
Those whose earnings exceed the annual threshold are going. The administration’s plan would offer them some relief as their monthly payments would be cut down as instead of 10 percent of their income only 5 percent would go towards repayment.
The proposed changes to the Revised Pay As You Earn Repayment Plan (REPAYE), would also allow for a new mechanism to be put in place which would allow people to access student loan forgiveness in an expedited time frame. This is because students with a student loan principal balance of $12,000 or less would be eligible to receive student loan forgiveness within 10 years instead of 20 to 25 years. For every $1,000 above the principal threshold, an additional year would be added before they were eligible for forgiveness.
The new changes would not only change the monthly payments but would also make changes to how interest rates were charged. Essentially under the new changes the payment would first need to be applied to the interest. If the payment failed to cover the entirety of the interest then the additional interest would not be charged.