There is more to the president’s student loan relief plan than forgiveness.
When the White House revealed President Biden’s student loan relief plan in Aug. 2022, most of the headlines about the package centered around the plan to forgive $10,000 or $20,000 in federal student loan debt for most borrowers. And to be fair, that was certainly the most impactful and ambitious part of the plan.
However, now that the Supreme Court has rejected the loan forgiveness plan, it’s more important than ever for student loan borrowers to know that there was quite a bit more in the plan than forgiveness. And some of the other provisions in the plan could provide just as much, or even more, relief to millions of student loan borrowers. Here’s a rundown of three of the most important things to know about as student loan payments are set to resume for the first time in over three years.
Your monthly payment could be cut in half
Income-driven repayment plans are already widely used by student loan borrowers. These plans limit the maximum amount you can be required to pay each month to a certain percentage of your discretionary income – typically 10%. And any remaining balance is forgiven after either 20 or 25 years under one of these plans, depending on the nature of your loans.
Biden’s plan calls for creating a new income-driven plan that cuts the required payment for undergraduate loans to just 5% of discretionary income. And not only that, but the plan also increases the definition of discretionary income to income in excess of 225% of the federal poverty level.
If this plan is implemented, millions of student loan borrowers could see their required monthly payments cut in half (or more). According to the administration’s fact sheet, the average single public school teacher would save nearly $1,700 per year on student loan payments, just to name one example.
Low-balance loans could be forgiven much sooner
As mentioned, federal student loans are forgiven after the borrower makes required payments for either 20 or 25 years under an income-driven repayment plan.
Biden’s plan aims to take this one step further by forgiving loans with original balances of $12,000 or less after just 10 years of payments. The idea is that most people who borrow money to attend community college will be debt-free within a decade.
No more horror stories of increasing balances
You’ve probably heard student loan horror stories that sound something like this. A borrower takes out $50,000 in student loans to pay for their degree, enrolls in income-driven repayment, makes required payments for 10 years, and ends up owing $60,000 due to the buildup of interest.
Biden’s plan effectively subsidizes the unpaid interest on student loans so that nobody’s balance will grow as long as they make their required monthly payments (even if their income-driven plan requires them to pay nothing at all).
There could be more to come
Shortly after the Supreme Court’s decision, Biden met with some of the senior officials in his administration to discuss the next steps on student loan relief. So, we could see new plans emerge in the coming days, as well as details about the implementation of the relief measures discussed here. Stay tuned.
