The Biden administration will forgive up to $10,000 in federal student loans for individuals making less than $125,000 a year or married couples or heads of household making less than $250,000 a year.
There will be a pause on student loan repayments, interest and collections through the end of the year.
The Department of Education proposed a new income-driven repayment plan that would cut monthly payments in half for undergrad loans, deliver forgiveness for some borrowers 10 years sooner, and make it easier to enroll in such payment plans.
Monthly payments on undergraduate federal loans would be capped at 5% of a borrowers discretionary income under the new program. The weighted average rate will be paid by borrowers with both undergrad and graduate loans.
The average annual student loan payment is expected to be lowered by more than $1,000.
The threshold of non-discretionary income that is protected from repayment would be increased. The White House says that anyone who makes less than the minimum wage will not have to pay monthly.
A single public school teacher with an undergrad degree, making $44,000 a year, would pay only $56 a month on their loans, compared to the $197 they pay now under the most recent income- An annual savings of $1,700 would be achieved.
If a person makes a monthly payment, the plan will cover their monthly interest. The White House said that no borrowers loan balance will grow as long as they make their payments. Unemployment or low income borrowers will be covered.
The plan would forgive loan balances after 10 years of payments, instead of 20 years, for people with original loan balances of $12,000 or less. Almost all community college borrowers will be debt-free within 10 years.
Four types of income-driven repayment plans are provided by the Department of Education.
The White House said that the current versions of these plans are too complex and limited. Millions of borrowers who might benefit from them do not sign up, and the millions who do sign up are often left with too much debt.
The changes are expected to reduce future monthly payments for lower and middle income borrowers.
It will be easier for borrowers to enroll when the plan is in place. It will be possible for borrowers to allow the Department of Education to pull their income information.
The public will be able to comment on the draft rule after it is published on the Federal Register.
Here is who qualifies for Biden's student loan forgiveness plan.
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