In Case You Missed It - New Student Loan Repayment Changes Proposed

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ICYMI: New Student Loan Repayment Changes Proposed

In case you missed it, the Education Department has outlined new changes that will make it easier for borrowers who are repaying federal student loans. If the changes take effect, future borrowers' monthly payments could be 40% lower than under the current rules. The proposal is part of the White House's plan announced in August to provide relief to the roughly 40 million people in the United States who are currently saddled with student loan debt.

The changes would amend the REPAYE plan, and would offer $0 monthly payments for borrowers earning less than roughly $30,600 annually or $62,400 in a family of four. The changes would also cut payments in half for borrowers with undergraduate loans who don't qualify for $0 monthly payments. And if you make payments on your debt (even if it's less than the interest), you won't see your balances grow from unpaid interest.

The proposed regulations would also cap how much of your discretionary income can be used to pay for your loans, dropping it from 10% to 5%. But unfortunately, not all borrowers will be able to take advantage of this, as the 5% of discretionary income cap on payments only applies to undergraduate loans, not graduate school loans.

The proposals were meant to be paired with student debt relief that would have erased up to $20,000 of student debt for qualified borrowers. However, the White House's student debt relief plan stalled amid legal challenges before it could provide debt forgiveness to borrowers. The plan is currently on hold.

-Kristin

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Discretionary Income

Discretionary income is the income you have left over to spend, save, or invest after you pay taxes and other essentials such as rent or mortgage, utilities, food, and credit card bills. Discretionary income is less than both total income and disposable income because it's income you can use at your discretion. Since everyone has to pay for certain essentials, such as food and housing, you have to subtract those costs to determine your individual discretionary income.

Discretionary income, for purposes of income-driven student loan plans, is calculated by comparing your income with the federal poverty level.

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