Biden administration is making a big change to student loan repayment. What borrowers need to know

The new option would change one of the four current income-driven repayment plans that limit borrowers’ bills at a share of their discretionary income.

Instead of paying 10% of their discretionary income a month on the Revised Pay As You Earn Repayment, or REPAYE, Plan, borrowers would be required to pay just 5% toward their undergraduate student loans.

Currently, after 20 years of payments on undergraduate student loans, any leftover debt is forgiven on the existing REPAYE Plan. The revised option preserves that timeline.

However, under the Biden administration’s proposal, those with original student loan balances of $12,000 or less may get their loans forgiven after just 10 years.

Under the current REPAYE Plan, discretionary income is calculated as money earned over 150% of the federal poverty guideline. As a result, single borrowers begin to make payments based on income over roughly $21,900, based on 2023 guidelines, said higher education expert Mark Kantrowitz.

Under the new plan, borrowers wouldn’t need to make payments based on income earned until it hit 225% of the federal poverty guideline, or about $32,800, Kantrowitz said.

He provided an example of how monthly bills could change with the overhauled option.

Previously, a borrower who made $40,000 a year would have a monthly student loan payment of around $151. Under the revised plan, their payment would drop to $30.

Someone who earned $90,000 a year, meanwhile, could see their monthly payments shrink to $238 from $568, Kantrowitz calculated.

And those who earn under around $32,800 will have $0 monthly payments.

The new option should be available to borrowers with undergraduate and graduate student loans, although undergraduate borrowers will have lower payments. Those with Parent Plus loans won’t be eligible to enroll in the overhauled plan.

Defaulted loans are typically ineligible for income-driven repayment…