However, the Biden administration maintains that its actions are legal, citing the Heroes Act of 2003 as providing the U.S. Secretary of Education the power to make modifications related to student loans during national emergencies. This assertion is based on the fact that the United States has been under a state of emergency due to the Covid-19 pandemic since March 2020.
President Joe Biden's administration has announced a new student loan repayment plan. This plan is aimed at providing relief to millions of Americans struggling with student debt. The program, which is revealed as the administration ramps up the IDR Account Adjustment, would allow borrowers to cap their monthly loan payments at 5% of their income and forgive any remaining debt after 10 or 20 years of payments. The Biden administration estimates that the new plan would provide relief to as many as eight million borrowers.
The new plan would be a significant change from the current income-driven repayment plan, which is known as Revised Pay As You Earn (REPAYE). This can be a significant relief for those who have low-paying jobs or are struggling to find work. Under the new plan, borrowers would be able to reduce their payments in half, making it easier for them to stay current on their loans and avoid default. In accordance with a fact sheet, some groups of borrowers will be able to save up to $2,000 annually.
The current REPAYE plan allows borrowers that earn less than 150% of the federal poverty level (or approximately $21,900) to qualify for the program. According to the new proposal, borrowers will not be required to make payments until their income reaches 225% of the federal poverty guideline, or around $32,800. Individuals earning less than this threshold would have zero monthly payments.
But the program turns out to benefit not only those with lower incomes. A student loan expert Mark Kantrowitz also notes that even those with higher incomes will see savings under the new formula. This is because payments will be based on 5% of the borrower’s discretionary after-tax income instead of 10% or 15% under the current program. For example, someone earning over $90,000 and currently paying $568 per month would see a decrease in their monthly payment to $238, which is quite significant.
The new plan provides the same path to loan forgiveness as the current program. Thus, borrowers can have their loans forgiven after 20 years of payments. Additionally, those who make regular payments can count on loan forgiveness after 10 years of repayments.
Moreover, the new proposal ensures that if payments are made on schedule, there will be no additional unpaid interest added to the balance, effectively eliminating the compounding problem of interest-on-interest adding to outstanding balances. In the past, family income was used to determine the required payments in income-driven plans, but under this new plan, only the income of the borrower will be taken into account, providing relief for many young married couples.
The new plan is being met with widespread support from student loan borrowers, advocates, and experts. According to Latoria Williams, the CEO of 1F Cash Advance, the new student loan repayment plan announced by the Biden administration is a much-needed and long-overdue solution to the student loan crisis.
"As the CEO of a company that helps individuals access emergency funds, I can attest to the devastating effects of student loan debt on individuals and their families. The plan's cap on monthly payments at 5% of income will provide significant relief to millions of borrowers who have been struggling to pay off their loans. Overall, the plan is a much-needed and well-thought-out solution to the student loan crisis. I fully support it and stand for implementing it as soon as possible." - she says.
It is important to note that this program does not cover PLUS loans taken out by parents of students. The program is anticipated to be available starting July 1, 2024, although some elements of the program may be implemented earlier.
What's the future of student debt forgiveness?
The recent proposal comes amid uncertainty surrounding the future of the comprehensive student loan forgiveness plan proposed by Biden. In February, The U.S. Supreme Court is scheduled to hear oral arguments regarding the policy.
Recall that in August, Biden announced that millions of Americans would be eligible for cancellation of their education debt, with amounts reaching up to $20,000 for those who received a Pell Grant during college and up to $10,000 for those who did not. This announcement has faced opposition from Republicans and conservative groups, who have filed multiple lawsuits in an attempt to stop the policy from being implemented. They argue that the President does not have the authority to cancel consumer debt without the approval of Congress and that the policy would have negative consequences.
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