A new proposal by the Biden administration would dramatically cut monthly payments in half, with monthly payments as low as zero for many borrowers, while completely wiping out the remaining balance for some borrowers after 10 years of payments.
Unlike the administration’s previous plan granting selective student-debt forgiveness, this is merely a generous reworking of the Revised Pay As You Earn plan, a type of income-driven repayment plan for federal student loans. Thus, it is less likely to make its way to the Supreme Court, which will hold hearings at the end of February on the legality of Biden’s original $10,000 forgiveness plan.Current programs base payments on 10% or 15% of the borrower’s discretionary after-tax income.
Previously, family income was used to calculate the required payments in these income-driven plans. Now, only the income from the actual borrower will be counted — a relief to many young married couples.As it is written, this new program does not apply to PLUS loans that parents of students take out.
Many borrowers are stuck not only with the high interest rates but also with the compounding of debt — which means they may have paid off their original borrowings but still owe twice as much in unpaid interest!
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