Your Student Loan Payment May Go Down
Get ready to start paying student loans again . President Biden’s massive plan to ease student loans is currently before the Supreme Court , and whatever the decision, the payout is likely to begin this summer. While everyone’s attention has been on debt relief, the Biden administration has also taken steps to change the way borrowers repay their loans. Under the new income-based repayment program, some of these accounts could even be halved. Here’s what you need to know about possible changes to your student loan repayment plan.
What the new repayment plan means for you
Earlier this year, the Department of Education outlined the details of its revised income-based debt repayment plan. Compared to other types of loans, income-based repayment plans are based on the borrower’s income, not the loan amount. Currently, the revised Pay As You Earn, or REPAYE , plan requires borrowers to pay back 10% of their discretionary income each month. Also under the current REPAYE plan, this discretionary income is calculated as money earned at more than 150% of the federal poverty rate.
Under the new REPAYE plan, student loan borrowers will not be required to make payments based on income received until income reaches 225% of the federal poverty level. Moreover, borrowers will have to pay only 5% on their loans. This means that the payments of most borrowers will be reduced by at least half.
How might this look to you? CNBC gives an example of how monthly bills can change with the new plan:
- Right now, a borrower making $40,000 a year has a monthly student loan payment of about $151. Under the revised plan, their payment will drop to $30.
- A borrower making $90,000 a year has a monthly student loan payment of about $568. In the revised plan, this amount has been reduced to $238.
- Borrowers earning less than $32,800 individually (less than $67,500 for a family of four) will receive $0 monthly bills.
Both the existing and the revised REPAYE plan have the same repayment schedule: for undergraduate study loans, any remaining debt is written off after 20 years of payments. For graduate or professional student loans, the repayment period is 25 years.
While debt relief will provide substantial relief for existing borrowers, the revised REPAYE plan could help current and future college students for years to come. (For other college savings news, next year you can transfer unused funds from your child’s 529 plan to a Roth IRA for them.)
According to CNBC, the new REPAYE plan could be officially available on July 1, 2024, with some elements coming sooner. This gives borrowers enough time to understand how this will apply to them. Once the new REPAYE plan becomes available, borrowers will be able to apply at StudentAid.gov .
For now, don’t let student loan returns take you by surprise; start taking steps now to get your repayment plan in order .