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Get ready to resume paying your student loans. President Biden’s comprehensive plan for student loan relief is currently being reviewed by the Supreme Court, and regardless of the decision, repayments are expected to begin this summer. While much focus has been on debt cancellation, the Biden administration has also worked on altering how borrowers handle their repayments. With the new income-driven repayment plan, some bills may even be reduced by half. Here’s what you need to know about potential changes to your student loan repayment plan.
What the updated repayment plan means for you
Earlier this year, the Education Department revealed the details of its updated income-driven repayment plan. Unlike other types of loans, income-driven repayment plans are determined by a borrower’s income, rather than the loan amount. Currently, the Revised Pay As You Earn Repayment (REPAYE) Plan requires borrowers to pay 10% of their discretionary income each month. Additionally, under the current REPAYE Plan, discretionary income is calculated as the amount earned over 150% of the federal poverty guideline.
Under the new REPAYE plan, student loan borrowers would no longer have to make payments based on income until it reaches 225% of the federal poverty guideline. Furthermore, borrowers would only be required to pay 5% of their income toward the loans, which means that most borrowers would see their monthly payments cut by at least half.
What might this mean for you? CNBC offers an example of how monthly payments could change under the new plan:
Currently, a borrower earning $40,000 per year pays around $151 per month in student loans. Under the updated plan, this payment would drop to $30.
A borrower earning $90,000 annually pays around $568 per month, but the revised plan would reduce this amount to $238.
Borrowers making less than approximately $32,800 individually (or less than $67,500 for a family of four) would have no monthly payments.
Both the current and the revised REPAYE Plan share the same repayment timeline: For undergraduate loans, any remaining debt is forgiven after 20 years of payments. For graduate or professional loans, the repayment period extends to 25 years.
While debt cancellation would offer significant relief to current borrowers, the revised REPAYE Plan could benefit both present and future college students for many years ahead. (In other news about college savings, next year you can roll over unused funds from your child’s 529 plan into a Roth IRA for them.)
The new REPAYE Plan could officially launch on July 1, 2024, with certain aspects being rolled out earlier, according to CNBC. Borrowers will have ample time to understand how it affects them. Once available, borrowers can apply through StudentAid.gov.
For now, don’t be caught off guard by the return of student loan payments; start taking action now to get your repayment plan ready.
