In addition to the $10,000 loan forgiveness for borrowers, individuals still paying federal student loans for their undergraduate education will have a repayment no more than 5% of their discretionary monthly income if they sign up for the Income-Drive Repayment Plan, according to the announcement.
The previous amount for this payment option was 10% of gross monthly income for 3 of the 4 repayment plans.
The Student Debt Relief Plan also guarantees that borrowers earning less than 225% of the federal poverty level — equivalent to the annual salary of a single person making $15 an hour — will not have to make a monthly payment.
The plan also reduces the amount of time borrowers may have to pay on their loans by granting loan forgiveness after 10 years, instead of 20 years, for borrowers with loan balances of $12,000 or less.
The plan also covers the borrowers unpaid monthly interest so that borrower’s loans will not grow as long as they make their monthly payments. In some cases, if their income is under 225% of the federal poverty limit, they may still be granted this interest exemption even when the monthly payment is $0 a month.
In 2022, Health and Human Services placed the Federal Poverty line for single person households at $13,590, which means that 225% is equal to $30,577.50 a year — meaning those making that salary or less annually may be eligible to have a a monthly payment of $0.
The Income-Drive Repayment Plan is available through the Federal Student Aid Office of the U.S. Department of Education. Four repayment plans are available, including the REPAYE Plan, PAYE Plan, IBR Plan, and the ICR Plan. The monthly payment for these plans from the Department of Education is as follows:
|REPAYE Plan||Generally 10 percent of your discretionary income.|
|PAYE Plan||Generally 10 percent of your discretionary income, but never more than the 10-year Standard Repayment Plan amount|
|IBR Plan||Generally 10 percent of your discretionary income if you’re a new borrower on or after July 1, 2014*, but never more than the 10-year Standard Repayment Plan amount|
Generally 15 percent of your discretionary income if you’re not a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount
|ICR Plan||The lesser of the following:|
20 percent of your discretionary income or
what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
Previously each of these plans have a length of payment of 20 to 25 years.
According to the Department of Education, under each of these plans, any remaining loan balance at the end of the specified period is forgiven if the loans are not fully repaid at the end of the repayment period.
For each plan, there is an annual deadline for income to be recertified. If income is not recertified by the deadline, there are various consequences.
The White House gave this example: “A typical single public school teacher with an undergraduate 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-driven repayment plan, for annual savings of nearly $1,700.”
More information on the repayment plans is available through the Federal Student Aid website.
Application for repayment plans is available through a person’s Federal Student Aid account.
The Department of Education estimates that among borrowers eligible for relief, 21% are 25 years or younger, and 44% are ages 26-39. More than a third of borrowers are 40 year old and up, including 5% who are senior citizens.