In the new plan for paying back student loans that the Biden administration announced on January 10, more borrowers could have their monthly payments drop to $0.
Revised Pay As You Earn is a plan for paying back student loans that the Biden administration wants to change. This week, they put out a proposal for new rules (REPAYE). (Photo: https://www.forbes.com/)
The new option changes one of the four income-driven repayment plans that are already in place. These plans limit borrowers’ bills to a certain percentage of their extra income in order to make it easier for them to pay off their debt.
Under the proposal, called the Revised Pay As You Earn Repayment Plan, or REPAYE, borrowers would have to pay 5% of their extra income each month towards their undergraduate student loans instead of 10%.
Mark Kantrowitz, an expert on higher education, says that the new REPAYE plan could start on July 1, 2024. This estimate takes into account the public’s right to comment on the proposed rule for 30 days and the time it takes for new rules to go into effect. But he said that some parts of the plan could be done sooner.
There will be more people with no payments.
Under the REPAYE plan as it is now, money earned over 150% of the federal poverty guideline is counted as “discretionary income.” So, Kantrowitz said, single borrowers will start making payments based on their income over about $21,900 in 2023.
Kantrowitz said that under the new plan, borrowers wouldn’t have to make payments based on their income until it reached 225% of the federal poverty line, which is about $32,800.
He gave an example of how the new option could change the monthly bills.
Most college students will benefit from the change.
Borrowers with both undergraduate and graduate student loans should be able to use the new option, though undergraduate borrowers will have lower payments.
People who have Parent Plus loans won’t be able to sign up for the new plan. Most of the time, people who have defaulted on their loans can’t use income-based repayment plans.
But under the new plan, people who have fallen behind on their payments might be able to join the income-based repayment plan, which is another type of income-driven repayment plan.
There may be a tax bill for forgiven student loan debt.
It’s not clear if the federal government will tax forgiven debt at the end of the payment period.
Debt forgiveness used to trigger a tax bill under income-driven repayment plans. But a new law has put an end to that policy until at least 2025, and experts think it will stay that way.
Some states might also think that the forgiven debt is taxable.
Read More:
Biden: Student Loan Program and Its Current Status
New Revised Pay As You Earn: Uncertain Student Loan Forgiveness
Student Loan Repayment Pause: Extended?
