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Revised REPAYE Plan to Ease Student Loan Debt Burden

Get the latest updates on the new REPAYE plan from the Education Department, aimed at reducing the nation’s $1.76 trillion student loan debt. Discover the changes to the income-driven repayment plan and learn how it could benefit you with the possibility of decreased monthly payments and debt forgiveness in as little as a decade.

Questions Answered in this Article

What is the REPAYE plan?

The REPAYE plan is a revised income-driven repayment plan for federal student loan borrowers expected to be finalized by the end of 2023 under the Biden administration. It aims to ease the burden of the nation’s $1.76 trillion student loan debt by decreasing monthly payments by at least 50% and providing debt forgiveness in as little as a decade.

Who are the key beneficiaries of the new IDR plan?

  1. College attendees without a degree
  2. Borrowers in high-cost living areas
  3. Borrowers at risk of delinquent or defaulted student loans
  4. Borrowers who can’t pay off all their interest each month
  5. Borrowers of color

Who won’t benefit from the new IDR plan?

  1. Parents with Parent PLUS loans
  2. Borrowers with only graduate school debt

What does the revised IDR plan do?

The revised IDR plan caps monthly payments at a percentage of the borrower’s income and forgives the remaining balance after a set number of years of payments have been made. It also covers any interest that is not paid each month, protects more of the borrower’s earnings, and enrolls defaulted borrowers with lower monthly payments and eventual forgiveness.

The Benefits of the New REPAYE Income-Driven Repayment Plan

The Education Department is planning to make changes to its existing income-driven repayment plan for federal student loan borrowers. These changes could result in a decrease of monthly payments by at least 50% and the possibility of debt forgiveness in as little as a decade. The revised plan, known as REPAYE, is expected to be finalized by the end of 2023 under the Biden administration. The aim is to ease the burden of the nation’s $1.76 trillion student loan debt. Borrowers who earn the least relative to their debt will benefit the most from these changes. The plan caps monthly payments at a percentage of the borrower’s income and forgives the remaining balance after a set number of years of payments have been made.

According to experts, the following five groups of people could be the key beneficiaries of the new IDR plan:

MORE: Department of Education Announces Changes to Income-Driven Repayment Forgiveness Criteria

College Attendees Without a Degree

People who took out student loans but did not complete their studies and earn a bachelor’s degree can face difficulties. Although they generally have lower loan balances, they do not receive the 66% average income increase that college graduates have compared to high school graduates with some college, according to the Economic Policy Institute’s 2017 data.

The revised IDR plan could help these borrowers: those who originally took out $12,000 or less in student debt would have their remaining balance forgiven after 10 years of payments under the revised plan, instead of 20 to 25 years under current plans.

According to an analysis of 2019 government data by the Urban Institute, 51% of households with student debt under $10,000 are comprised of people who did not earn a bachelor’s degree. Even zero monthly payments under the revised IDR plan would count towards the 10-year forgiveness goal.

MORE: Student Loan Forbearance Extension: What You Need to Know

Borrowers in High-Cost Living Areas

The current IDR plan caps monthly student loan payments at a percentage of the borrower’s discretionary income, which is calculated as the household income minus 150% of the federal poverty guideline for the borrower’s family size and location.

The revised plan will subtract 225% of the federal poverty guideline from the household income, protecting more of the borrower’s earnings. For example, a household with an income of $75,000 for a family of four in Virginia would have payments based on just $7,500 of discretionary income under the revised plan. Additionally, undergraduate loan payments would be capped at 5% of discretionary income, instead of the current minimum of 10%, reducing monthly payments from $250 to approximately $31 for the example household.

This change will have a significant impact on borrowers living in expensive areas where housing, food, and other costs consume a larger portion of discretionary income, according to Betsy Mayotte, the president and founder of The Institute of Student Loan Advisors.

Borrowers at Risk of Delinquency or Default

Borrowers at risk of defaulting on their student loans stand to benefit from the new IDR plan. Despite their small balances, they have high rates of delinquency and default, according to Dominique Baker, an education policy professor at Southern Methodist University. This group overlaps with those who didn’t graduate, whose default rate is three times higher than those who did. The revised IDR plan will allow defaulted borrowers to enroll and receive lower monthly payments and eventual forgiveness. Additionally, borrowers who are 75 days late on their payments will be automatically enrolled, which could prevent them from defaulting if they lose their job or earn less than the income threshold for $0 monthly payments.

More: Understanding Delinquency and Default in Student Loans

Borrowers Who Can’t Pay Off All Their Interest Each Month

Under the new IDR plan, the government will cover any interest that is not paid each month as long as the borrower keeps up with their monthly payments. This means that the remaining interest will not accrue, potentially reducing student loan balances. According to Daniel Collier, an assistant professor at the University of Memphis, the psychological impact of not seeing balances go up every month could be particularly beneficial for borrowers with high debt loads.

Borrowers of Color

According to the Department of Education, on average, Black, Hispanic, American Indian, and Alaska Native borrowers would have lifetime payments per dollar borrowed that are 50% lower than under the current REPAYE plan, while white borrowers’ projected lifetime payments per dollar borrowed would be 37% less than under the current REPAYE plan. This difference is due to racial income disparities, with Hispanic households earning 75% of the median income of white families, American Indian and Alaska Native households earning 64%, and Black households earning 61% according to 2015-2019 US Census data. Victoria Jackson, assistant director of higher education policy at The Education Trust, a nonprofit promoting racial and economic equity in higher education, says that “black borrowers borrow the most, are more likely to borrow, and are more likely to struggle with repayment, so anything that improves and makes student debt more manageable will help those who are most harmed.”

MORE: Managing Student Loan Debt: Understanding Your Options

Who Won’t Benefit from the New IDR Plan

  • Parents with Parent PLUS loans: Parents who borrowed to help pay for their child’s college education through Parent PLUS loans would not be eligible for the revised IDR plan. They are currently only eligible for the least generous of the four IDR options- income-contingent repayment.
  • Borrowers with only graduate school debt: Borrowers who took out federal loans for graduate school would see a decrease in their payments, but the improvement would be less favorable than those with only undergraduate loans. They will still pay 10% of their monthly discretionary income, compared to 5% for undergraduate loan borrowers.
  • Availability: The revised IDR plan is not yet available, and the Education Department aims to launch it by the end of 2023, but this timeline is uncertain due to budget constraints. Federal student loan payments may resume before the revised plan is rolled out. Current REPAYE borrowers will be automatically transitioned to the revised plan when available, while other borrowers will need to contact their servicer to sign up.

MORE: How Income-Driven Repayment Plans Can Help You Manage Your Student Loan Payments

Summary

  • The Education Department plans to change the existing income-driven repayment plan for federal student loan borrowers, known as REPAYE.
  • The changes are expected to result in a decrease in monthly payments by at least 50% and the possibility of debt forgiveness in as little as a decade.
  • The aim is to ease the burden of the nation’s $1.76 trillion student loan debt, with the least-earning borrowers set to benefit the most from the changes.
  • The revised plan caps monthly payments at a percentage of the borrower’s income and forgives the remaining balance after several years of payments have been made.
  • Five groups of people could benefit from the new IDR plan:
    1. College attendees without a degree
    2. Borrowers in high-cost living areas
    3. Borrowers at risk of delinquent or defaulted student loans
    4. Borrowers who can’t pay off all their interest each month
    5. Borrowers of color.
  • The plan will not benefit parents with Parent PLUS loans and borrowers with only graduate school debt.
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