On January 10th, the Department of Education announced proposed “regulations to reduce the cost of federal student loan payments, especially for low and middle-income borrowers.” This plan would specifically lower the cost of monthly student loan payments under income-driven repayment (IDR) plans, creating “the most affordable income-driven repayment plan that has ever been made available to student loan borrowers.” This announcement comes amid a Supreme Court case reviewing the legality of Biden’s student loan forgiveness plan, announced in August 2022.
Under this new plan, individuals who make less than roughly $30,600 annually would have $0 monthly payments. A borrower in a family of four who makes less than about $62,400 would also pay $0 per month. For borrowers who do not meet that income requirement, monthly payments for loans would be cut in half from 10% of their discretionary income to 5% of their discretionary income. Finally, “the proposed regulations would also ensure that borrowers stop seeing their balances grow due to the accumulation of unpaid interest after making their monthly payments.”
The Department of Education detailed the estimated effects of this plan in a press release. Future borrowers could see their “total payments per dollar borrowed decrease by 40%. A typical graduate of a four-year public university would save nearly $2,000 a year relative to the current REPAYE plan. 85% of community college borrowers would be debt-free within 10 years.” Additionally, “on average, Black, Hispanic, American Indian and Alaska Native borrowers would see their lifetime payments per dollar borrowed cut in half.”
The plan is not final yet and has no clear timeline for implementation. According to Tara Siegel Bernard of The New York Times, “the proposal will be subject to public comment for 30 days, and the administration will take that feedback into account before the rule becomes final later this year.”
