The U.S. Department of Education unveils new regulatory plan for income-driven loan payment
The department will also publish a list of “low-financial-value” college programs.
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Committed to changing the federal student loan system, the Biden administration proposed reworking of income-driven repayment plans (IDR) today.
Considering that eight 8 million borrowers are currently enrolled in some type of IDR plan, the new legislation would affect many lives. Higher Ed Dive dissected the changes so you can see how they might affect you:
- Monthly student loan repayments would be cut in half for borrowers whose installments are based on their income. Instead of 10%, in the new policy borrowers would pay only 5%;
- Borrowers who took out money for graduate school would still need to pay 10% of that income monthly. Those with both undergraduate and graduate school debt would pay 5% to 10%, based on a weighted average calculated from their original loan balances;
- Sometimes borrowers’ monthly payments are lower than accruing interest, meaning their loan balances grow even though they’re making payments on time. Addressing unpaid interest from accumulating, the new regulation seeks to stop capsizing borrowers’ finances;
- A 10-year timetable would be created for borrowers with $12,000 or less in debt to pay it off, compared to the current timeframe for IDR plans of up to 25 years. Every additional $1,000 borrowed above $12,000 would add one year of monthly payments to the required repayment time;
- Credit would be given to IDR borrowers toward loan forgiveness if they deferred or went into forbearance on loans during certain periods of hardship
Students with any direct loan from the federal government would be eligible to enter this plan, except for those with Parent PLUS Loans, which families take out on behalf of their undergraduate students.
For Education Secretary Miguel Cardona, these potential changes would open opportunities for future disadvantaged students to not be saddled with giant amounts of debt. He added by saying he is committed to fixing a broken system.
Republicans have been trying to challenge Biden’s loan forgiveness plan and an ongoing battle that should have a new chapter in February, when the U.S. Supreme Court is due to hear oral arguments in the loan forgiveness cases.
The plan is to finalize the rule this year, but no official dates have been set. The Department of Education is accepting feedback in the next 30 days on the draft regulation and on the factors that should be taken into consideration in the list of “low-financial-value” college programs.
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