It’s a monumental day for student loan borrowers. Not only did President Joe Biden and the U.S. Department of Education announce federal borrowers will have $10,000 in student loan debt forgiven, but they also said some repayment plans will be retooled so that borrowers owe half of what they are currently paying.
The new income-driven repayment plans would cap monthly payments at 5% of an undergraduate borrower’s discretionary income. That’s half of the current rate that borrowers pay.
“This means that the average annual student loan payment will be lowered by more than $1,000 for both current and future borrowers,” the White House said in a release.
An income-driven repayment plan bases a borrower’s monthly loan payment on their income and family size. There are four main types of these payment plans; three of them generally cap payments at 10% of a borrower’s discretionary income.
A borrower’s remaining debt is typically canceled once they make 20 years of monthly payments. But the White House is also proposing cutting that in half as well, to 10 years, for borrowers with original loan balances of $12,000 or less.
This will be particularly helpful to community college borrowers, allowing nearly all of them “to be debt-free within 10 years,” according to the Department of Education.
The proposed change would also “cover” a borrower’s unpaid monthly interest, so that “no borrower’s loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low,” the White House said.
“The existing versions of these plans are too complex and too limited,” the White House said. “As a result, millions of borrowers who might benefit from them do not sign up, and the millions who do sign up are still often left with unmanageable monthly payments.”
The president said he would offer more details on the student loan changes Wednesday afternoon. The U.S. Department of Education said more information, including on how to apply for forgiveness, would be available in the coming weeks.
This is a developing story. Please check back later for more details.
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