Breaking News 1/10/23: We have gotten more details on the new repayment plan, and the window for public comments is now open.
Learn about the pros and the cons of the new plan and how to leave feedback to make it even better.
The recently announced new repayment plan from the Biden administration hasn’t gotten much attention.
It isn’t a surprise that the details of the new repayment plan have flown under the radar. They were announced at the same time as a payment pause extension and an ambitious attempt to forgive up to $20,000 of student debt per borrower.
However, the new repayment plan could eventually prove to be the most significant change announced in 2022.
Initial Announcement Details
When the Biden administration first announced the creation of a new Income-Driven Repayment (IDR) plan, they highlighted four critical features:
- Lower Monthly Payments – The current IDR plans charge between 10 and 20% of a borrower’s monthly discretionary income. The new repayment plan would charge only 5% for undergraduate loans. This change alone could cut monthly bills in half.
- More Borrowers Qualify for $0 Per Month Payments – For most IDR plans, if your monthly income is below 150% of the federal poverty level, you pay $0 per month on your federal loans. The new plan bumps the number to 225% of the federal poverty level. The change means more borrowers would qualify for $0 per month payments.
- Qualify for Forgiveness Sooner – Under the current IDR plans, borrowers can qualify for forgiveness after 20 years of payments. The new plan would lower the number to 10 years for borrowers with balances of less than $12,000.
- Interest Relief – Many borrowers have loan balances spiral out of control because their monthly payments are lower than the interest charged each month. Under the new plan, that excess interest is immediately forgiven.
While these changes are all promising, many important details are still unknown. We don’t even know the name of this new repayment plan.
However, many clues may have been hidden in plain sight.
Expanded Income-Contingent Clues
Even though the headline changes to the new repayment plan sound positive, there is still cause for concern.
For starters, many of the changes announced sound vaguely similar to the Expanded Income-Contingent Repayment Plan — a plan that started the rulemaking process in 2021 but was riddled with potential flaws.
Perhaps the biggest issue with the Expanded Income-Contingent Repayment Plan was that it was only available to borrowers with undergraduate loans.
Biden’s newly announced repayment plan focuses on undergraduate borrowers and those with smaller balances. We are still early in the process, but if the EICR plan is any indication, many borrowers may get excluded from the benefits of the new plan.
Critical Terms Still Unknown
The list of unknowns at this point is massive.
The biggest questions include the following:
- What happens with graduate loans under the new plan?
- How do borrowers transition from other IDR plans to the new plan?
- Will FFEL borrowers be eligible?
- What about Parent PLUS borrowers?
- How are direct consolidation loans impacted?
- Does the plan count towards PSLF?
- What is the name of the new plan?
Seemingly small details like borrower and loan eligibility will have a considerable impact on the final product. As the new repayment plan goes through the rulemaking process, borrowers should keep a close eye on these details.
Could the Courts End the Plan Before it Starts? Borrowers are justifiably worried about the courts getting involved, given what happened with the loan cancellation plan.
However, the President has previously created new repayment plans through an executive order. For example, REPAYE was created without Congressional involvement.
Timeline for Final Terms and Conditions
Using the example of the REPAYE plan, which was announced in 2014 and became available to borrowers in 2015, we can expect the new plan to take about one year to implement fully.
Because there are so many question marks with the new plan and critical details not yet finalized, borrowers will want to closely monitor the rulemaking process when the new plan gets discussed.
This page will be updated as that information becomes available.