Biden and DOE Propose Expansion to Student Loan IDRs

The Biden administration unveiled its proposed expansion of income-driven repayment (IDR) for student loans on Tuesday January 10, 2022. The proposal will slash monthly payments for most borrowers and dramatically increase the cost of the loan program.

Rather than creating an entirely new repayment plan, the administration intends to revise an existing IDR plan, known as REPAYE, to make it more generous. The following are the most significant changes:

The amount of income exempt from student loan payments will rise from 150% of the federal poverty line to 225%. For a single borrower in 2023, this threshold is $30,578.

For undergraduate student loans, payments are set at 5% of income above the threshold, down from 10%. Payments on graduate loans will remain at 10% of income above the threshold.

If a borrower’s monthly payment does not fully cover accrued interest on her loans, any remaining interest will be forgiven.

Those who borrowed $12,000 or less will see their outstanding balances cancelled after they make 10 years’ worth of payments. Time to cancellation will increase by one year for every $1,000 borrowed.

Undergraduate-only borrowers could also enjoy full loan cancellation after 20 years’ worth of payments; borrowers with graduate loans will receive cancellation after 25 years. These are unchanged from the current version of REPAYE.

The proposal also makes several changes to the broader infrastructure around IDR, including:

ED will allow borrowers to count time spent in deferment or forbearance toward loan cancellation. Depending on the type of deferment or forbearance, borrowers may need to make catch-up payments to claim this benefit.

Borrowers more than 75 days delinquent on their loans will be automatically enrolled in an IDR plan, provided ED can access their income information from the IRS.

In order to streamline the confusing array of repayment options, ED will phase out new enrollments in most IDR plans other than the revised REPAYE plan.

ED will publish a list of programs that yield “low financial value” in order to dissuade students from enrolling.

The above proposal will still be required to go through a public comment period and could be subject to change. In a best-case scenario, parts of the proposal could become effective this summer.