College graduates hope that a new student loan repayment plan recently proposed by President Joe Biden will be passed. The plan, proposed on Jan. 10, 2023, will bring considerable relief for many graduates by reducing their payments and possibly offering some form of debt forgiveness after so many years of payments.
The new proposal was created by the Department of Education and is an overhaul of another existing proposal—the Revised Pay As You Earn Repayment Plan, or REPAYE. The original plan was created in 2016. Currently, four other similar proposals have already been made.
The Reason Behind the New Repayment Plan
The Department of Education claims it is “the most affordable income-driven repayment (IDR) plan that has ever been made available to student loan borrowers.” One reason for the changes, the department says, is that even before the pandemic, more than one million borrowers a year were defaulting on their education loans, which left many owing more than their initial loan because of accumulated interest.
Many Payments to Be Reduced to Half—or Less
The feature of the new proposed plan that graduates will enjoy is that it will—if passed—cut their payments in half. Right now, they are paying 10 percent of their discretionary income. The new plan only requires student loan payments of 5 percent per month.
New payments are also going to be determined by income levels. Borrowers at the lowest income levels will see the biggest cut—up to 83 percent less. Those at much higher income levels can expect no more than a 5 percent reduction. Post college graduates will likely have their payments remain at 10 percent.
The average minority graduate, whether Hispanic, black, American Indian, or Alaska Native, will have their federal student loan payments reduced by half. If their income is in the range of the bottom 30 percent, they also will see payments drop about 83 percent.
By Mike Valles