The Biden administration’s new strategy for repaying student loans, which was unveiled on January 10th, may result in more students’ monthly payments dropping to zero.
For millions of Americans, their ability to pay off their student loan debt is uncertain. In February, the Supreme Court will hear arguments to determine whether the Biden administration’s plan to wipe off billions of dollars in student debt exceeded its jurisdiction. (Photo: Shutterstock.com)
One of the four existing income-driven repayment plans is altered by the new option. These programs restrict borrowers’ debt payments to a predetermined portion of their additional income to make it simpler for them to pay off their student loan debt.
The Revised Pay As You Earn Repayment Plan, often known as REPAYE, would require borrowers to make 5% rather than 10% monthly payments on their undergraduate student loans.
Thus according higher education analyst Mark Kantrowitz, the new REPAYE scheme might begin on July 1, 2024. This estimate takes into consideration the 30-day public comment period and the time it takes for new regulations to take effect. But, he noted that some aspects of the plan may be completed sooner.
More persons without student loan payments will exist.
Earnings that exceed 150% of the federal poverty threshold are considered “discretionary income” under the current REPAYE program. So, according to Kantrowitz, single borrowers will begin paying payments in 2023 if their income exceeds $21,900.
According to Kantrowitz, under the new proposal, debtors wouldn’t be required to start making payments based on their income until it hit 32,800, or 225%, of the federal poverty level.
He presented an illustration of how the new choice would alter the regular expenses.
The majority of university students will gain from the reform.
The new option should be available to borrowers with both undergraduate and graduate student loans, however undergraduate borrowers will have lower payments.
Parent Plus loan holders won’t be allowed to enroll in the new program. Those who have fallen behind on their loan payments often aren’t eligible for income-based repayment programs.
The income-based repayment plan, a subset of income-driven repayment plans, may be an option for those who have fallen behind on their payments under the new scheme, nevertheless.
Taxes on forgiven student loan debt can be due.
At the end of the payment term, it is unclear if the federal government would tax forgiven student loan.
In income-driven repayment schemes, a tax bill used to be triggered by debt forgiveness. Nevertheless, a new regulation has ended such practice until at least 2025, and analysts believe that will remain the case.
Also, the student loan debt that has been forgiven may be taxed in some states.
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