Student loan repayment plan could reduce monthly bills by 50 percent for some borrowers

The U.S. Department of Education has released a draft of a plan to make federal student loan payments more affordable with reduced repayment amounts. If implemented, the proposal could help millions of student loan borrowers.

The changes are part of President Joe Biden’s historic debt relief program announced in August.

The plan would be to lift the threshold for Income-Driven Repayment qualifying discretionary income from 150 percent to 225 percent of the federal poverty level guidelines.

There would also be a reduced cap on monthly repayment amounts from 10 percent to 5 percent of discretionary income, cutting payments for most borrowers in half.

An IDR repayment plan is popular because it calculates a payment based on annual income and family size. After 20 to 25 years, the remaining debt is usually forgiven. Approximately 8 million borrowers are enrolled in IDR plans.

“For nearly three decades, IDR has failed to live up to its promise of an affordable lifeline for federal student loan borrowers. Instead, the program perpetuated an inescapable debt trap – leaving millions of borrowers vulnerable to devastating collection tools,” said Student Borrower Protection Center Deputy Executive Director Persis Yu. “By cancelling any unpaid interest each month, reducing monthly payments, and providing access to defaulted borrowers, the Biden Administration has begun to deliver on the original promise of IDR.”

The reduced payment amount will only be available to borrowers with undergraduate loans and will not provide any benefits to Parent PLUS borrowers.

“The Department’s plan remains out of reach for many of the students and families who are forced to take on some of the greatest amounts of debt in hopes of achieving social mobility. It ignores the reality that low-income families – especially low-income families of color – are more likely to rely on ParentPLUS loans or need to get a graduate degree to earn the same salary as their wealthier white peers,” said Yu. “Equity demands that these borrowers have equal access to an affordable payment plan and the necessary supports to free themselves from the crushing weight of student debt. The secretary must include them in the final rule.”

In August, President Biden also announced up to $20,000 in student debt relief for federal student loan borrowers. The relief has yet to be distributed due to ongoing legal challenges. The Supreme Court is scheduled to review the legality of the relief in two federal cases next month.