Earlier this year, in January, the Biden Administration unveiled new proposals to alleviate the burden on federal student loan borrowers based on their income levels, as part of a broader initiative to make the loan system more manageable.
If you are a student loan borrower in Illinois, here is what you need to know about this proposal and how it can affect you.
What is the new Student Loan Debt plan of President Biden?
The current plan for federal student loan borrowers, Revised Pay As You Earn (RPAYE), is set to undergo significant changes. Under the current plan, borrowers must make monthly payments equivalent to 10% of their discretionary income – that is, any income left over after essential expenses like food and rent are paid.
However, the Biden Administration has proposed changes to make this plan more generous in several ways.
3 things you need to know
Here are the three changes you need to know about the revised plan:
Payments on undergraduate loans are reduced
One of the most significant changes proposed by the Biden Administration for federal student loan borrowers is a reduction in monthly payments for those with undergraduate loans. Under the new plan, borrowers will pay just 5% of their discretionary income towards their loans, down from the current rate of 10%. However, this change will only apply to borrowers earning over $30,500 or families of four earning over $62,400.
People with smaller loans will make payments for fewer years
In addition to reducing monthly payments for higher-income borrowers, the Biden Administration is also proposing changes for borrowers with smaller loan balances. Under the current system, borrowers with original balances of $12,000 or less typically must make payments for 20 years before their loans are canceled. However, under the proposed changes, these borrowers would have their loans canceled after just 10 years of payments.
Parents are excluded
Under the Biden Administration’s student loan debt plan, Parent PLUS loans are not eligible for the new changes, which means that parent borrowers will have fewer options available to them if they are struggling to make payments. One option for these borrowers is the income-contingent repayment plan, which requires them to pay 20% of their discretionary income for 25 years. After this period, any remaining balance is forgiven.
However, the income-contingent repayment plan is generally more expensive than the new REPAYE plan proposed by the Biden Administration. It would only require borrowers to pay 5% of their discretionary income for 20 years.
What does the plan mean for Illinois borrowers?
Illinois borrowers who have federal student loans can take advantage of the new student loan debt plan proposed by the Biden Administration. However, the plan does not apply to private loans. To qualify for loan forgiveness under the new plan, individual borrowers in Illinois must earn $125,000 or less, and married borrowers or heads of household must earn $250,000 or less.
The U.S. Department of Education already has the necessary information on about 8 million eligible borrowers. That means they will receive relief automatically. However, in case the agency does not have a borrower’s current information, the administration assures that they will be contacted in the future.
It’s important for eligible borrowers in Illinois to review their loan repayment options and seek guidance from a qualified expert to take full advantage of the benefits provided under the new plan.