Home » Repayment » Repayment Plans » Should I Wait for Biden’s New 5% IDR Plan?

Should I Wait for Biden’s New 5% IDR Plan?

In most cases, waiting for the newest IDR repayment plan to be available is a mistake. Delays offer few advantages and come with significant disadvantages.

Written By: Michael P. Lux, Esq.

Published:

Affiliate Disclosure and Integrity Pledge

Should I Wait for Biden’s New 5% IDR Plan?

In most cases, waiting for the newest IDR repayment plan to be available is a mistake. Delays offer few advantages and come with significant disadvantages.

Written By: Michael P. Lux, Esq.

Published:

Affiliate Disclosure and Integrity Pledge

Now that we have received some important details on Biden’s proposed new repayment plan, many borrowers are looking forward to the potential savings they might see.

Even though the federal student loan repayment pause is still ongoing, I’ve already received several emails from borrowers thinking about adjusting their repayment strategy in light of this new plan. Some are even considering holding off on other options while they wait for the new plan to become available.

For most borrowers, this is probably a mistake.

Great Opportunities Potentially on the Horizon

To be clear, the new repayment is a game-changer for many borrowers, especially those who only borrowed for undergraduate studies. They may see their monthly payments cut in half.

Additionally, borrowers with smaller balances may earn forgiveness in ten years instead of the typical 20 to 25-year wait.

In other words, the details of this plan look great, and borrowers have reason to be excited.

Sherpa Thought: The excitement around the new plan is justified, but there are still some major flaws that I’d like to see addressed. For starters, this plan isn’t very fair to teachers and social workers.

Unknown Timeline

One major problem with waiting for Biden’s new plan is that we don’t know when it will happen.

We could be well into 2024 before the new plan takes effect.

The borrowers that wait may miss significant opportunities. For example, if a borrower takes a six-month forbearance while they await the new plan, they could lose out on valuable progress toward student loan forgiveness.

Worse yet, the timeline is just part of the problem.

Rules Could Change

Biden’s proposed new repayment plan is only a proposal at this point.

It probably won’t have to survive a vote in Congress, but that doesn’t mean the new plan is set in stone.

During the federal rulemaking process, the terms of the new plan could change considerably. The administration may decide to abandon the plan altogether.

If the plan becomes politically unpopular, shelving it could become part of a more significant budget deal. The possibilities are seemingly endless.

A Word of Caution: I’m not saying the new repayment plan is unlikely to happen. It probably will happen, and it probably will look very similar to the current proposal.

However, I am saying that it is not a sure thing. Don’t put yourself in a situation where you are dependent upon something that is only a possibility.

Switching Repayment Plans is Easy

The flip side of our analysis is that switching repayment plans is incredibly easy.

Changing repayment plans takes less than 10 minutes on studenaid.gov. Borrowers can switch repayment plans at any point — you don’t have to spend an entire year on one IDR plan before you can change plans.

In other words, when a new plan becomes available, it is easy to sign up. There isn’t a need to wait to maximize the potential benefits of a new plan.

How Should Borrowers Plan for a New Repayment Option?

As an IDR borrower, my plan is simple: I’ll sign up for the best IDR plan currently available when the restart begins.

I’ll keep a close eye on the proposed plan. I hope that the final version is an improvement over my current plan. If the final version is an improvement, I’ll sign up as soon as it becomes available.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

Leave a Comment