The new plan offers far more generous terms than several other income-driven repayment plans that it’s meant to replace. Previous plans offered cancellation after 20 or 25 years of payments, while the new plan offers it in as little as 10. The new plan also lowers monthly payments for millions of borrowers.
Those who took out more than $12,000 will be eligible for cancellation but on a longer timeline. For each $1,000 borrowed beyond $12,000, it adds an additional year of payments on top of 10 years.
The maximum repayment period is capped at 20 years for those with only undergraduate loans and 25 years for those with any graduate school loans.
The Biden administration says next month’s relief will particularly help Americans who attended community colleges, which generally cost less than four-year universities. The plan aims to place community college students “on a faster track to debt forgiveness than ever before,” Education Secretary Miguel Cardona said.
Counterintuitively, those with smaller student loan balances tend to struggle more. It’s driven by millions of Americans who take out student loans but don’t finish degrees, leaving them with the downside of debt without the upside of a higher income.
Republicans have railed against the new repayment plan, saying it helps wealthier Americans with college degrees at the expense of taxpayers who didn’t attend college. Some say it’s a backdoor attempt to make community college free, an idea that Biden campaigned on but that failed to win support in Congress.
Starting next month, the Education Department says it will automatically wipe away balances for eligible borrowers enrolled in the SAVE plan. The department will email borrowers who might be eligible but have not enrolled.
Some of the plan’s provisions took hold last summer — it prevents interest from snowballing as long as borrowers make monthly payments, and it makes more Americans eligible to get their monthly bill lowered to $0.
Other parts are scheduled to take effect in July, including a change to limit borrowers’ payments to 5% of their discretionary income, down from 10% in previous income-driven repayment plans.
The Biden administration is separately pursuing another plan for widespread cancellation. After the Supreme Court rejected Biden’s first plan, he asked the Education Department to try again under a different legal authority. The department has been working on a new proposal that would provide relief to targeted groups of borrowers.
This post originally appeared on Huffpost.
Source: https://www.buzzfeed.com/collinbinkley/student-loan-cancellation-feb-2024
