Biden Administration to set a 5% cap on student loan repayment. What does that mean?
The Biden Administration announced a student loan forgiveness plan Wednesday, which would cancel up to $20,000 for Pell Grant recipients and $10,000 for non-Pell Grant recipients.
A new income-driven repayment plan proposed by the Department of Education would also cap monthly payments for undergraduate loans at 5% of the borrower’s income, which is half the rate currently set for existing plans.
Who qualifies for an income-driven repayment plan?
Those with federal student loans may qualify. However, defaulted loans do not count.
The Department of Education offers four income-driven repayment plans. Three of the plans have a payment rate of 10% of the borrower’s income. Under the new repayment plan, the rate would change to 5% of the borrower’s discretionary income.
Will the 5% cap apply to take-home pay or taxable income?
The 5% payment rate will apply to the borrower’s discretionary income, which means the money the borrower has after paying taxes.
The new income-driven repayment plan would also cover the borrower’s unpaid monthly interest as long as monthly payments are made.
