On the day of the Biden administration's student loan forgiveness plan, it was a celebration for Short.
A graduate of the University of Missouri in 2012 with a degree in hotel management, Short took out student loans of over $50,000. He has struggled with his college debt for a long time.
Short was most interested in the announcement of changes to income-driven repayment plans which came from the White House.
Monthly payments on undergrad debt would be capped at 5% of discretionary income under a new plan from the Department of Education.
The proposal raises the amount of money considered non-discretionary and protects it from being used to calculate student loan payments.
No borrowers balance would grow if they made a qualified payment.
Those with original loan balances of $12,000 or less would be forgiven after 10 years of payments.
The loan forgiveness plan could be a game-changer for millions of borrowers with remaining balances.
Short says that this will put more money into the pockets of everyday, middle-class Americans who need that extra help, especially when student loan payments resume on New Year's Day.
He says that this has huge ramifications.
Short was going to make payments on his student loans in the early 2020s. He was making good money working in the hotel industry, but it would take sacrifice to put 10% of his discretionary income towards student debt each month.
A graduate of the University of Missouri in 2012 with a degree in hotel and restaurant management, Short has racked up over $50,000 in student loans.
It's courtesy of the subject.
When he took out those loans, he thought the payment plan was a lot of money. He wondered what he would do to pay off his student loan. I don't know if I would have to sell my car or move in with my family. I was already in a small apartment.
Short was laid off due to Covid hitting. He got a new job as an assistant property manager and took advantage of the student loan moratorium. He was going to have to resume payments at 10% of his income in January.
Short notes that he will benefit from the increased threshold for non-discretionary income under the new plan.
The threshold that will not be used for loan repayments is 150% of the poverty level for a single person. The amount of money borrowers can keep to 2 25% of the poverty level would be raised by the Department of Education.
If you make the equivalent of a $15 hourly minimum wage or less, you won't have to make any payments on your loans under the plan.
The increased threshold for non-discretionary income is a big recognition that people have many other things on their plate.
Short expects to pay around $200 per month on his federal loans under the new payment plan.
He says that it is a good step to recognize that borrowers over the past decade needed some assistance, and that getting that assistance will have a positive impact on people's financial future over several decades.
As a result of the proposed payment plan, borrowers will no longer have to pay interest on their loan as long as they make a qualified monthly payment, which could be $0 for those with low income.
It is a big deal for low-income borrowers if their payment doesn't cover the interest on their loans. The remaining interest gets capitalized and added to the loan principle if that is the case. It puts people in a cycle of never being able to progress on their student loans because the payments balloon.
[A 5% income cap is] much more manageable amount, and not an ‘I’m moving back in with my parents’ situation.
Justin Short
student loan borrower in Kansas City, Missouri
The White House said that getting rid of accruing interest means that borrowers won't see their loan balance grow as long as they make their payments.
Christian Blair is a lawyer in Houston. He obtained $170,000 in federal student loans after graduating from the University of Kansas with a law degree.
Since taking out those loans, the interest has gone up.
Christian Blair had $170,000 in student loans. He has added $30,000 to his debt since then.
It's courtesy of the subject.
Payments for undergrad loans will be capped at 5% of discretionary income, graduate loans will be capped at 10%, and borrowers with a mix of both will pay a weighted average rate.
If Blair didn't take advantage of the student loan moratorium he would have to pay $2,500 a month on his plan. Payments under the new income-driven plan would be much lower due to the new cap and higher threshold.
Blair says that if my balance doesn't keep going up and my payments are less than 10% of my discretionary income, that's a better deal than most private offerings.
He says that he was going to refi but not anymore. That should be the case. I shouldn't have to use a private solution to get a better loan than I can get through the government.
The public will have 30 days to comment on the draft rule for the income-driven repayment proposal. The Department of Education wouldn't comment on the timing of the plan's availability, but experts say it could open up by the summer of23.
Who will be eligible for the program, which types of loans qualify, and how will people enroll are some of the questions that remain.
Income-driven repayment options are good, but require a lot of care and attention by the borrowers, with requirements to recertify their income every year and make sure they are getting their information in on time.
She says that it will require a good amount of clear communication to people so they don't feel like they're missing out.
I shouldn’t have to go through a private solution to get a better loan than I can get through the government.
Christian Blair
student loan borrower in Houston
Blair will have to wait to see how the income-driven repayment proposal shakes out, but Biden's forgiveness plan has already impacted his family.
Blair found out last week that his father has student debt from earning an associate's degree and has been making minimum monthly payments for 20 years.
Blair says that he will be able to wipe out his remaining balance under the new plan.
Blair said that a Black man who got an associate's degree couldn't afford to pay out of pocket and helped put him through school all the while. He won't have student loans for the first time in his life.
You can check it out.
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Do you qualify for Biden's student loan forgiveness plan?
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