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New Federal Repayment Terms for Student Debt: What You Should Know

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The Biden Harris administration has talked extensively about how individuals and families are affected by student debt. Officials hear arguments about how the debt relief program can make it easier for everyone to increase the number of loans forgiven or reduce monthly payments. 

Exactly how to adjust the regulations, though, is hotly in debate. What is next for student debt relief and how will your financial institution or student loan servicer handle the changes? We’ll look at how public service loan forgiveness programs will affect your loan details. 

Payments Based on Income 

Instead of blanket student loan forgiveness or student loan payment pause, the federal government wants to introduce more manageable payments for those with a direct loan. There are four major repayment plans out there and they’re all driven by how much people make a month. Of course, even with these considerations, many are still struggling to repay their debts. 

Student Loan Debt Relief

The latest proposal will affect 8 million borrowers, but experts warn that the actual benefits will vary based on which federal student loans were granted. The government is not changing the Income Contingent Repayment, Income Based Repayment, or Pay As You Earn repayment plans. However, they are overhauling the Revised Pay As You Earn plan.

This repayment plan, which usually takes about 10 – 20% of your discretionary income per month, will now be cut in half. New regulations would also increase the federal poverty limit from 150% to 225%. After a certain number of years have passed, a federal student loan would be entirely forgiven. 

Loan Payments

This change will reduce the amount of discretionary income that a person has, which will lower their payments even more. So if you’re paying about $150 per month right now, then the new changes would have you pay less than $75.

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In addition, interest will not accrue on a loan (so people don’t have to fret about new interest rates) once it exceeds the borrower’s monthly payment, which will stop loan balances from growing exponentially based on interest accrual. 

Loan Balance for Graduate Students 

For those with graduate loans from the federal government, they can expect to see a small reduction based on the poverty limit exclusion. However, the 10% of discretionary income will not change for those with graduate federal student loans.

If the individual has undergraduate student loans, though, then they can expect to see a reduction in overall spending per month. So if you have a mix of undergraduate and graduate federal loans, you’ll likely pay around 7.5% of your discretionary income every month to your loans. 

What’s Next for Loan Payments?

The Biden administration understands when they notify borrowers, every individual will have their own reaction. The administration is building in a number of qualifiers and exceptions to the rules to ensure affordable monthly payments. If you’re wondering what’s next for student debt relief, it helps to talk to someone who knows. Debt Strategies is here to help you understand your debt relief program. Whether you have a private student loan or federal, contact us today to see what we can do