More borrowers might have their monthly payments reduced to zero under the new student loan repayment plan announced by the Biden administration on January 10.
The new option changes one of the four currently available income-driven repayment plans, which cap borrowers’ expenses at a percentage of their discretionary income to make debt repayment more manageable.
Under the suggested Revised Pay as You Earn Repayment Plan or REPAYE, students would be forced to pay 5% of their discretionary income each month into their undergraduate student loans rather than 10% of their discretionary income currently.
Higher education specialist Mark Kantrowitz said the new REPAYE program may become legally available on July 1, 2024. That estimate takes into consideration a period before new regulations can take effect and a 30-day public comment process on the proposed rule. However, he claimed that some aspects of the plan might be implemented sooner.
There Will be More Borrowers with $0 Payments
Discretionary income is defined as money generated above 150% of the federal poverty level under the current REPAYE plan. Accordingly, single borrowers start making payments after their income exceeds $21,900, as per the 2023 guidelines, according to Kantrowitz.
According to the new plan, borrowers would not be required to start making payments based on their income till it reached around $32,800, or 225% of the federal poverty level.