Here’s What You’ll Pay, And When You’ll Get Student Loan Forgiveness, Under Biden’s New Plan

The Biden administration released proposed regulations this week on an overhaul of a student loan repayment plan called Revised Pay As You Earn (REPAYE). REPAYE is an income-driven repayment plan that bases a borrower’s student loan payments on their income and family size. Borrowers who don’t pay off their loans in full by the end of their repayment term can receive student loan forgiveness on the remaining balance.

The announced overhaul to the REPAYE program will reduce monthly payments and accelerate student loan forgiveness for many borrowers. But some borrowers will see comparatively greater impacts than others. Here’s a breakdown.

Biden’s New Repayment and Student Loan Forgiveness Plan: An Overview

The REPAYE plan, which was originally established in 2016, ties monthly student loan payments to 10 percent of a borrower’s “discretionary income,” which is the amount of their Adjusted Gross Income (AGI) that exceeds 150 percent of the federal poverty limit for their family size. Borrowers with only undergraduate debt can receive student loan forgiveness after 20 years if they have not repaid their balance in full. Borrowers who have any graduate school loans would be on a 25-year term.

The new proposed regulations would increase REPAYE’s income exemption to 225 percent of the federal poverty limit, substantially raising the income threshold for when borrowers actually have to start making payments (borrowers who earn below the threshold would pay zero). And for undergraduate student loans, the updated REPAYE plan will reduce monthly payments to five percent of discretionary income. Borrowers with only graduate school loans would continue to pay 10 percent of their discretionary income, while borrowers with a mix of undergraduate and graduate school loans would pay somewhere between five and 10 percent of their discretionary income, depending on the relative proportion of undergraduate and graduate school loans.

Lowest-Income Borrowers Will Pay The Least Under Biden’s Student Loan Plan

Because of the increased poverty exclusion limits, the overhauled REPAYE plan will allow more borrowers to pay $0 on their federal student loans. Even $0 required minimum “payments” can count towards a borrower’s student loan forgiveness term.

A single borrower who makes $30,500 or less would pay $0 per month under the new REPAYE plan, according to the Education Department. And so would a borrower in a household of four with income below $62,400.

Payments under the new REPAYE plan, as with all income-driven plans, are recalculated every 12 months. So if a borrower’s income increases, so might their payments.

Undergraduate Borrowers Will See Lower Payments and Faster Student Loan Forgiveness

Borrowers who have only undergraduate federal student loans with incomes above the poverty limit threshold will see the biggest reduction to their payments under the new REPAYE regulations. In addition to the increased poverty exemption, these borrowers will only have to pay five percent of their discretionary income, rather than 10 percent.

A single borrower with an Adjusted Gross Income of $65,000 and a family size of one would pay around $390 per month under the current version of the plan. But after the overhaul, that same borrower may only pay around $145 per month.

In addition, undergraduate borrowers with starting balances of $12,000 or less will receive student loan forgiveness on any remaining balance after only 10 years, rather than 20 years under the current version of the plan. Borrowers with initial balances between $12,000 and $20,000 will receive student loan forgiveness after 10 to 20 years, depending on the size of that initial balance. All other undergraduate borrowers will receive student loan forgiveness at the 20-year point.

Graduate Student Loan Borrowers Will See More Modest Payment Reductions And Slower Student Loan Forgiveness

Borrowers with federal student loans from graduate school may still see a reduction to their payments under the new plan, but the differences may not be as significant.

Borrowers with only graduate school loans will continue to pay 10 percent of their discretionary income, as is presently the case under the current version of REPAYE. But the increase poverty exemption will still provide a reduction in payments. A single borrower with only graduate school loans, an Adjusted Gross Income of $65,000, and a family size of one would pay around $370 per month under REPAYE today. Under the overhauled version of the plan, the same borrower may pay closer to $290 per month.

Borrowers with a mix of graduate and undergraduate loans would pay “between 5 and 10 percent” of their discretionary income “based upon a weighted average calculated from the share of their original loan balances borrowed for undergraduate versus graduate study,” according to the Education Department. A borrower with equal portions of both undergraduate and graduate school loans would pay 7.5% of their discretionary income. So the same borrower referenced above with an Adjusted Gross Income of $65,000 and a family size of one, with a 50/50 mix of undergraduate and graduate school loans, would pay around $215 per month.

Married Borrowers Will Get New Flexibility Under Biden’s Student Loan Plan

One of the lesser-talked about benefits of the overhauled REPAYE plan is the treatment of married borrowers. Unlike other income-driven plans like Income-Based Repayment (IBR), the REPAYE plan in its current form factors in the combined income (and combined federal student loan debt) of a married borrower and their spouse, regardless of their fax filing status. Under IBR and other income-driven plans, married borrowers can file taxes separately to exclude spousal income so that their student loan payment is based on their individual income alone. Some couples may pay more in taxes when they file separately.

The result is that some married borrowers have selected IBR — a more expensive income-driven plan — rather than REPAYE because of these flexibilities. A married borrower with $65,000 in Adjusted Gross Income whose spouse has the same earnings ($130,000 combined) would pay around $850 per month under the current version of REPAYE. If they file taxes separately, they could instead pay around $560 per month under IBR.

But under the proposed regulations, the revamped REPAYE plan would provide the same flexibilities to married borrowers as IBR and other income-driven plans do, allowing them to file taxes separately to exclude spousal income. Combined with the additional benefits of the new REPAYE plan, this could significantly lower the monthly payments of some married borrowers. Under the new version of the plan, a married borrower with only undergraduate student loans and $65,000 in Adjusted Gross Income who files taxes separately from their spouse would pay around $145 per month.

Parent PLUS Borrowers Cannot Access Biden’s New Student Plan

The Education Department confirmed this week that Parent PLUS borrowers will not be able to access the new plan. Parent PLUS loans were already excluded from the REPAYE plan, and despite a push from borrower advocates to expand the program to include Parent PLUS borrowers, the administration declined to do so. Parent PLUS loans consolidated into a Direct Consolidation loan can be repaid under Income Contingent Repayment (ICR), a much more expensive plan.

Further Student Loan Forgiveness Reading

Big Student Loan Forgiveness Update As Education Department Clarifies Eligibility For One-Time Adjustment

Biden To Supreme Court: My Student Loan Forgiveness Plan Is Legal

Student Loan Forgiveness Could Be Big In 2023: Here’s What To Expect

The Student Loan Pause Is Actually Leading To Loan Forgiveness — Are Further Extensions Coming?