Biden administration announces changes to income-driven student loan repayment plan


President Joe Biden’s recent student loan forgiveness announcement included proposed changes to the Public Service Loan Forgiveness Program (PSLF) and income-driven repayment plans. (iStock)

When President Joe Biden announced his administration’s widespread student loan forgiveness plan last week, he also announced new proposed changes to other loan forgiveness programs, including repayment plans focused on Income.

The Department of Education proposed rule would significantly reduce the monthly payment for many low- and middle-income borrowers. This would reduce the cap on monthly student loan repayments from 10% of Discretionary Income to just 5%. It would also increase the amount of income considered “non-discretionary”, which is not taken into account in repayment plan calculations.

The ministry’s proposed rule would cancel loan balances on income-driven repayment plans after 10 years of payments, rather than 20 years, for borrowers with an original loan balance of $12,000 or less. The rule would also cover all borrowers’ unpaid monthly interest as long as they make their payments, ensuring that their total balance does not increase from month to month.

The proposed regulations will be published in the coming days in the Federal Register and the public is invited to comment on the draft rule for 30 days.

If you have private student loans, these proposed changes will not apply to them. But you can potentially lower your monthly payments by refinancing. Visit Credible to find your personalized interest rate without affecting your credit score.


The Ministry of Education is also proposing changes to the PSLF

The Department of Education has also proposed long-term changes to the Civil Service Loan Forgiveness Scheme (PSLF), saying the adjustments would make it easier for people working in the civil service to qualify for the forgiveness.

The ministry proposes to allow more payments to qualify for the PSLF, including partial, lump sum and late payments. He also wants to count certain deferments and abstentions, such as those for Peace Corps and AmeriCorps service, National Guard duty and military service.

These proposed adjustments are separate from other temporary changes to the PSLF that the Biden administration announced last October.

Under the PSLF program, borrowers had to commit to at least 10 years of public service work and make all 120 eligible student loan payments over 10 years. Under the new rules, which have been changed “for a limited time due to the COVID-19 national emergency,” any previous payment made by a PSLF-eligible borrower would count as an eligible payment. It is regardless of the type of loan, the repayment plan or whether the payment was made in full or on time. This temporary derogation is scheduled to end on October 31, 2022.

If you have private student loans that aren’t eligible for forgiveness, you may want to consider refinancing to lower your monthly payments. Visit Credible to compare multiple mortgage lenders at once and choose the one with the best interest rate for you.


Other Changes to Loan Cancellation Plans

Biden’s announcement was just the latest in a series of changes to income-contingent student loan repayment. Last April, the Ministry of Education announced new steps borrowers should be given access to student loan forgiveness through income-based repayment plans and the PSLF.

The department instructed student loan servicers to make a one-time account adjustment to account for certain long-term forbearances, including the use of 12 months of one-time forbearance and the use of 36 months of forbearance discretionary, in the total number of payments made. It came after the ministry found that many loan servicers had pushed borrowers into forbearance when an IDR repayment plan would have been better for them. Indeed, some IDR plans can set payments as low as $0 per month.

The Consumer Financial Protection Bureau (CFPB) said in a recent webinar that by the end of 2022, new enrollment rules will come into effect and borrowers will be able to see audits of forbearances, total IDR payments, and account adjustments for reviews of direct loans and other managed loans by the federal government.

Federal Student Aid (FSA) estimated that these changes would result in immediate debt cancellation for at least 40,000 PSLF borrowers. Several thousand more would also receive IDR loan forgiveness, and approximately 3.6 million borrowers would receive at least three years of additional credit for their IDR forgiveness.

If you want to reduce your private student loan repayments, you may be able to do so by refinancing at a lower interest rate. Contact Credible to speak with a student loan expert and see if this is the right option for you.

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