The New Income-Driven Repayment Plan: How It Works BY CECILIA CLARK AND ELIZA HAVERSTOCK
The Education Department on January 10 unveiled the details of its revised income-driven repayment plan.
The draft rules, now out for public comment, illustrate the most generous undergraduate student loan repayment plan yet: • Borrowers earning less than about $32,800 individually, or less than $67,500 for a family of four, would see $0 monthly bills. • Most other borrowers would see their payments cut by at least half. • Students who borrow less than $12,000 would see their remaining balances wiped away after 10 years of payments, instead of 20 to 25 years. A sketch of the new plan was released in August, along with many other provisions of the Biden administration’s sweeping student loan relief effort. Since then, attention has been focused mostly on the legal fate of student debt cancellation — as much as $20,000 erased from the balances of millions of borrowers. But while Biden’s debt cancellation plan would give a one-time boost to existing borrowers, this revised IDR could help current and future college students for years to come. People who earn the least stand to benefit the most. Borrowers with the lowest projected lifetime earnings would see total payments per dollar that are 83% less, while the highest earners would only see a 5% cut, the Education Department said. Across all borrowers, average lifetime payments would shrink by about 40% compared to existing IDR plans. Some details remain unclear. The Education Department hasn’t said when the new plan will become an option for borrowers, though it’s expected to be finalized later this year. And the cost of implementing the plan faces a squeeze in Congress. Budget battle aside, the new plan should reduce borrower confusion considerably. It’s going to be a direct replacement for one of the five current IDR plans and eventually replace three others as well.
The new plan should reduce borrower confusion considerably. It’s going to be a direct replacement for one of the five current IDR plans and eventually replace three others as well.
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