While President Joe Biden wades his way into another attempt to cancel student loan debt, he is also planning a separate program to revise loan repayments.
Student loan payments will come due this fall for the first time in more than three years as part of a Republican-led provision in the debt ceiling bill Biden signed into law last month. Payment pauses started in March of 2020 during the Trump administration and were renewed nine times between both Trump and Biden administrations.
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According to the Biden administration, the income-driven plan will be implemented in phases starting "later this summer" and claims to save the "typical borrower" about $1,000 per year.
The Saving on a Valuable Education plan would restructure the Revised Pay As You Earn plan, which is set to take full effect on July 1, 2024.
Part of the plan is a "12-month 'on-ramp' to repayment" that will run from October 1, 2023, to September 30, 2024, allowing borrowers to miss monthly payments without being considered delinquent or placed in default. Their missed payments will also not be reported to credit bureaus or debt collection agencies.
The Department highlighted three changes taking place this summer.
The new plan will increase the income limit for making zero-dollar payments from 150% of the poverty line to 225% of the poverty line, meaning borrowers who make less than $32,805, or $67,500 for a family of four, will not make payments.
The Department estimates that the poverty line increase will see an additional one million borrowers eligible for zero-dollar payments.
New interest limits will also take effect this summer, meaning so long as borrowers pay the monthly amount set out in their plan, unpaid interest will not accrue alongside what they owe.
In addition, married couples filing taxes separately will not have to include their spouse's income in their income calculation for payment and will not be required to include them in their family size.
By July 1, 2024, the new plan will cut undergraduate loan payments in half, from 10% to 5% of an income that reaches above the 225% poverty line threshold.
Borrowers who hold original loan balances of $12,000 or less will have their balances forgiven after the equivalent of 10 years of payments, or 120, instead of 20 years. That part of the plan will also add 12 payments per additional $1,000 borrowed above $12,000, retaining a maximum of 20 to 25 years.
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Current repayment plans require borrowers to repay loans for at least 20 to 25 years before forgiveness.
The Department estimates that the lowest projected lifetime earnings will only pay 17 cents on the dollar of borrowed money, whereas the highest earners will likely pay 95 cents on the dollar.