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For student loan borrowers, it’s been a year full of news.
From multiple forbearance extensions to fraud settlements and the larges student loan forgiveness plan in US history, many borrowers received a boost of momentum in 2022.
While there are still many questions about the evolving details of some of these announcements (including refunds), one issue that is coming into focus are the effects of changes to income-driven repayment plans.
What Is an Income-Driven Repayment Plan?
Income-driven repayment plans (IDRs) are just that — payment plans for federal student loans that are intended to be affordable based on a borrower’s income and family size.
Under the four different IDR plans, the monthly payment amount is a percentage of your discretionary income, with the percentage varying under each plan.
Generally speaking, the percentage under two of income-based repayment plans runs around 10%, while the other two plans can range between 10% and 20%.
What Changes Are Coming to Income-Driven Repayment Plans?
The White House announced in August that the US Department of Education was proposing new rules intended to make student loans more manageable for current and future borrowers.
Some of the proposed features include:
- Cutting monthly payments in half. The Department of Education proposed a new plan that “protects more low-income borrowers from making any payments and caps monthly payments for undergraduate loans at 5% of a borrower’s discretionary income — half of the rate that borrowers must pay now under most existing plans. ” Because of this change, the DOE said the average annual student loan payment would be lowered by more than $1,000.
- Raise the “discretionary” income level. At certain income levels, borrowers are completely protected from repayment. The proposed changes would make borrowers earning under 225% of the federal poverty level — the annual equivalent of $15 minimum wage — free from having to make a…
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