Exciting news is on the way for student loan borrowers! According to Forbes, President Joe Biden will make two new debt forgiveness options accessible in December.
While Biden’s Saving on a Valuable Education (SAVE) plan is now being challenged in court, borrowers will soon be able to choose between two other income-based repayment options. These proposals are slated to go live next month, providing a way to reduce or possibly eliminate student debt.
Biden Administration Revives PAYE and ICR Plans Amid SAVE Plan Uncertainty
Although the constitutionality of the SAVE plan is unknown, it has already had a huge impact. By lowering monthly payments and removing excessive interest rates for millions, it has provided full student debt forgiveness after 10 to 25 years of regular payments.
However, when the SAVE plan was created, it unfortunately eliminated new enrollments in the earlier plans: Pay-As-You-Earn (PAYE) and Income-Contingent Repayment (ICR).
Given the uncertain future of the SAVE plan, Biden’s Department of Education (DOE) has chosen to reestablish the option for borrowers to participate in the PAYE and ICR plans. This move provides more possibilities for those looking for reasonable solutions to their college debt.
- PAYE (Pay-As-You-Earn): Tailored for those with financial need, offering lower monthly payments.
- ICR (Income-Contingent Repayment): Provides flexibility with payments based on income and family size.
These plans not only offer relief but also a renewed sense of hope for those striving to overcome their student loan challenges.
Under the Biden administration, the landscape of student loan repayment arrangements changed dramatically. While the PAYE and ICR programs existed before, they were later incorporated into the larger SAVE project. This was corroborated by Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, in an interview with Newsweek.
The Evolution of Student Loan Repayment Plans
Beene stated that, with the SAVE plan currently suspended as it navigates the difficulties of the legal system, the administration is preparing to reinstate the previous arrangements. This action is intended to help students who would have benefited from these possibilities.
Biden’s Efforts in Student Loan Forgiveness
During President Biden’s tenure, the Department of Education had a significant impact, granting $175 billion in student loan forgiveness to approximately 5 million people.
Ensuring Loan Repayment Options
According to a Department of Education representative, as they continue to defend the SAVE plan in court, proactive actions are being implemented to ensure borrowers have viable debt repayment options. This is especially important for those seeking Public Service Loan Forgiveness while litigation is pending.
The interim final rule is critical in ensuring that the Department executes its statutory obligations under the Higher Education Act. This guideline allows debtors to pay using an income-contingent repayment plan by applying a temporary remedy.
This solution reopens enrollment for two types of repayment plans: Income Contingent Repayment (ICR) and Pay As You Earn (PAYE). Additional information will be released when the Department prepares to enroll new borrowers in these arrangements.
What are the eligibility criteria for the PAYE and ICR payment plans?
Pay As You Earn (PAYE) Plan:
To qualify, you must be a new borrower. This indicates you had no outstanding amount on a Direct Loan or FFEL loan when you acquired a new one on or after October 1, 2007. Additionally, you must have received a Direct Loan disbursement on or after October 1, 2011.
Eligible loans include:
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS Loans made to students
- Direct Consolidation Loans that do not include parent PLUS loans
The PAYE plan will no longer accept new enrollments beginning July 1, 2024. This does not apply to borrowers who applied before that date and are currently being processed.
Income-Contingent Repayment (ICR) Plan:
Any Direct Loan borrower with an approved loan type may choose this plan.
Parent PLUS loans are not directly eligible. However, parent PLUS borrowers can combine their Direct PLUS or Federal PLUS loans into a Direct Consolidation Loan, which is eligible for ICR. This is the only income-based option for parent PLUS borrowers.
As of July 1, 2024, no new ICR enrollments are allowed. Exceptions include borrowers who applied before the deadline but are still in the process, as well as those who used a consolidation loan to repay a parent PLUS loan.