Under existing rules, monthly student loan payments are capped at 10 percent of a borrower’s discretionary income, and those earning less than $20,400 a year aren’t required to make payments. But under the new “student loan safety net” plan, payments for undergraduate loans would be capped at just five percent of borrowers’ pay, and require payments only for those who earn more than about $30,000 a year.
The Education Department formally proposed the new repayment plan on Tuesday, and it‘s set to give a major overhaul to income–driven repayment plans – one of several payment options offered by the federal government. The resulting plan would not only offer lower monthly payments to millions of borrowers, but an easier path to forgiveness and a promise that unpaid interest will not be added to a borrower’s loan balance.
“Student debt has become a dream killer,” said Education Secretary Miguel Cardona. “This is a promise to the American people that, at long last, we will fix a broken system and make student loans affordable.”
The proposal would also make it easier to get debt erased after making several years of payments, and would erase all remaining debt after 10 years for those who took out $12,000 or less in loans.