Republican lawmakers in the U.S. Congress are moving forward with a plan that could significantly change the federal student loan repayment system, affecting millions of borrowers. This proposal aims to replace most existing repayment plans with two basic options for new borrowers: making fixed monthly payments or adjusting payments based on income.
Standard Plan
The new standard plan would allow borrowers to repay their debt over a period of 10 to 25 years, depending on the amount owed:
Debts under $25,000 would be repaid in 10 years.
Debts between $25,000 and $50,000 would be repaid in 15 years.
Debts between $50,000 and $100,000 would be repaid in 20 years.
Debts over $100,000 would be repaid in 25 years.
This plan would only be available to new borrowers, while current borrowers would maintain access to existing plans.
Repayment Assistance Plan
For those unable to meet the fixed payments of the standard plan, a Repayment Assistance Plan would be introduced, adjusting payments based on the borrower’s income. Monthly payments would start at $10 for those earning less than $10,000 annually, gradually increasing to a maximum of 10% of income for those earning $100,000 or more.
A key feature of this plan is that any unpaid interest after a monthly payment would be forgiven, preventing debt from growing over time. Additionally, the government would apply extra payments to the principal balance, helping borrowers steadily reduce their debt.
Impact on Current Borrowers
Current borrowers would retain access to existing plans and could choose the new Repayment Assistance Plan. They would also have the option of an Income-Based Repayment (IBR) plan, which bases payments on 15% of discretionary income and offers forgiveness after 20 or 25 years.
This proposal would also eliminate President Biden’s SAVE Plan, which is currently suspended due to legal disputes.
