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Proposed changes to student loans would help many current and future borrowers | Company

Reports on the Biden administration’s student loan plan understandably focused on financial relief for millions of borrowers, but the proposed rules would also help manage loan balances after relief and help many future recipients as well. of loans.

To recap, President Joe Biden in August fulfilled a campaign promise by announcing that $10,000 of federal student loan debt would be forgiven for borrowers with incomes below $125,000 ($250,000 for co-filers ), and that loan forgiveness increases to $20,000 for those who received income. based on Pell grants.

This is on top of $14.5 billion in relief for more than a million borrowers defrauded by some for-profit colleges, including ITT Tech, and substantial improvements to the public service loan forgiveness program. , as previously announced.

Additionally, the pause in student loan and interest payments that began during the COVID-19 pandemic when President Donald Trump was in office has been extended until December 31. This will be the last extension, Biden said.

Nearly 8 million eligible borrowers will automatically receive loan relief because the US Department of Education already has their income information. The remainder will need to apply once applications are ready, but before Nov. 15 in order to see loan cancellation before payments resume – sign up for email notifications about these applications at subscriptions.

Note that legal challenges to Biden’s loan relief plan “are virtually certain,” the Associated Press reported.

While the loan relief is expected to wipe out the loan balances of potentially more than a third of the nation’s 43 million people with federal student debt — about 730,000 are in South Carolina — plans also call for a relief for future borrowers and those with remaining balances.

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That help would come in the form of proposed changes to income-tested repayment plans for federal loans. According to the U.S. Department of Education and a White House fact sheet, the potential new rules:

  • First, require borrowers to pay no more than 5% of their monthly discretionary income for undergraduate loans, instead of the current 10%. (Borrowers with undergraduate and graduate loans would pay a weighted average percentage).
  • Second, increase the amount of income considered non-discretionary. No borrower earning less than 225% of the federal poverty level, or about $15 an hour in a full-time job, would have to make a monthly payment. (For an individual, subtract $31,000 from your income, and 5% of the remainder would be the monthly loan payment).
  • Third, forgive remaining loan balances after 10 years of payments, rather than the current 20 years, for those who had initial loan balances of $12,000 or less.
  • Fourth, no borrower’s loan balance would increase as long as they made their monthly payments (even if those required payments were zero). Currently, interest accrues on balances, so the debt can grow even as payments are made.

The actual detailed rules have yet to be published in the Federal Register, but as described, these changes should significantly reduce the required monthly loan payments in the income-based payment plan.

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There are strong feelings and a lot of politics surrounding these expensive loan relief plans, so the more you learn about the details, the better. By way of financial disclosure, my family is among the approximately 20% of households that would benefit from the proposed loan relief.

Of course, none of these loan relief plans change the fact that the cost of higher education in the United States has skyrocketed, that sleazy (and usually for-profit) schools continue to prey on borrowers and that many people who take out loans do not. t complete their degrees. I’m often amazed when I consider borrowing decisions that, in many cases, rest on the shoulders of college-bound teenagers.

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Reach David Slade at 843-937-5552. Follow him on Twitter @DSladeNews.