The Department of Education yesterday announced a proposed rule that aims to lower the student loan payments being made by those with student loan debt, while completely pausing payments for individuals who make less than $30,600 per year.
A copy of the proposed rulemaking can be accessed by clicking here. A 30-day comment period is open for anyone wishing to share their thoughts on the proposal.
The proposal amends the terms of the Revised Pay As You Earn (REPAYE) program. Anyone making less than $30,600 as an individual or a family of four making less than $62,400 would have their monthly payments reduced to $0. The current threshold for a $0 monthly payment is $24,000. For everyone else, payments would be cut in half, from 10% of their income to 5% for those with undergraduate degrees and between 5% and 10% of their income for those with undergraduate and graduate degrees. The expectation is that for those making more than the threshold, the reduced monthly payments will save them at least $1,000 per year.
The plan would also halt the accumulation of interest if a borrower’s payment does not fully cover the interest that is owed. The Department of Education estimates that as many as 70% of individuals on an income-driven repayment program have seen their balances grow because the payments they make do not cover the interest that is accruing on the underlying debt.
Finally, the proposal reduces the timeframe under which a borrower can have their loans forgiven. For individuals who borrower $12,000 or less, loan forgiveness can occur after making the equivalent of 10 years of payments. That period increases by one year for each additional $1,000 that is borrowed.
“Today the Biden-Harris administration is proposing historic changes that would make student loan repayment more affordable and manageable than ever before,” said U.S. Secretary of Education Miguel Cardona, in a statement. “We cannot return to the same broken system we had before the pandemic, when a million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed. These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness, so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families.”
The Biden Administration has taken a number of steps to address the growing amount of student loan debt. A plan to eliminate up to $20,000 of student loan debt for certain individuals is being challenged and the case will be heard before the Supreme Court next month.