We’ve been following the developments with student loans very closely for our clients and sharing them with our newsletter subscribers.
The latest news comes as Biden’s forgiveness plan works its way through the courts. Meanwhile, there is a proposed new payment plan that would effectively cut monthly payment amounts for many borrowers in half. Here’s what we know so far:
- The new plan will halve the amount of discretionary income used to calculate monthly payments for undergraduate loan repayment. Current income driven plans base monthly payments on 10% or 15% of discretionary income, but this plan would calculate payments on 5% of discretionary income for undergraduate loans and 10% for graduate loans, or a weighted average if a borrower has both.
- Loan balances will not grow if monthly payments are not enough to keep up with the interest as long as borrowers are current on their monthly payments.
- Borrowers who originally took out $12k or less will have loans forgiven after 10 years of monthly payments instead of 20.
- There will be improvements to qualifying and proving income levels through an automated process with the IRS to verify borrowers’ income.
The proposal is in a public comment period for 30 days before becoming final. We’ll be paying close attention and give updates as they come.