Your student-loan balances won’t grow even if the monthly payment is too low to cover the interest – if you are able to enroll in the Biden administration’s new payment plan. Check your eligibility 👇
The future of mass student-debt cancellation remains in limbo after the Supreme Court struck down President Joe Biden’s initial debt-relief plan last month. In the meantime, the Biden administration is moving forward with a new payment plan that officials are touting as a “huge deal” for borrowers — and that conservative critics are calling “a drastic shift in policy.”
The plan “is a big deal for both current borrowers and for all the future borrowers who are out there,” Bharat Ramamurti, the deputy director of the National Economic Council, told reporters. It’s “not a substitute for debt relief, but it is a huge benefit for borrowers.”The plan also has opponents, with some Republican lawmakers criticizing it as “fiscally irresponsible” and even “blatantly illegal” and some opponents hinting at legal challenges.
Balances won’t grow — even if the monthly payment is too low to cover the interest The SAVE plan aims to tackle some of these concerns. For one, starting this fall when student-loan payments resume, borrowers who use the plan won’t see their balances grow, even if their payment isn’t enough to cover the interest. That gets at one of the biggest complaints Betsy Mayotte, the president of the Institute for Student Loan Advisors, hears from borrowers about income-driven repayment plans.
And next summer, some borrowers could see their monthly payment amounts go down even more significantly. Starting in July 2024, borrowers with only undergraduate loans will only be required to put 5% of their income toward their debt, down from 10%. Borrowers with undergraduate and graduate loans will pay a share of their income between 5% and 10% that’s based on a weighted average of their loans.
That hasn’t worked out well in the past. A 2021 report from the National Consumer Law Center and the Student Borrower Protection Center found that more than 2 million borrowers had been repaying their student loans for more than 20 years. If those borrowers had been on functioning income-driven repayment plans, many likely would have been eligible to have their loans canceled. However, just 32 borrowers had had their loans canceled under income-driven repayment at that time.
“Taking a loan is not a slam dunk in that it’s just going to become a grant,” said Delisle, who has questioned the design of the income-driven plan and expressed concern about its possible unintended consequences. “This new plan will move it a lot closer to that.”
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