Under a new plan that the Biden administration proposed this month, some federal student loan borrowers will see lower monthly payments and others won’t have to make any payments.

This proposal proposes to revise the Revised Pay As You Earn program (REPAYE). REPAYE, one of the four income-driven plans offered to students who are having difficulty repaying student loans, is one of the four options by Department of Education. The rules will be finalized by the agency later in the year.

The key takeaway: With student loan payments set for a pause this summer, the REPAYE modifications could reduce some borrowers’ monthly payment by half and eliminate them entirely for others.

What’s included in the REPAYE Plan?

Over 9 million borrowers have paid back more than $500 billion in income-driven repayment plans. People with undergraduate loans will see the largest reductions through a revised REPAYE program.

  • Some would see their payments fall. The payments on undergraduate loans would be limited to 5% of the borrower’s discretionary income, down from 10% currently in the REPAYE program. Graduate debt would see borrowers paying 10% of their discretionary income. For borrowers with undergraduate and graduate debt, the payment would be a weighted-average.
  • Additional income would be protected. Borrowers who earn less than 225% below the poverty guideline, which is about $15 per hour, would not be required to make payments. The current program defines discretionary income as any amount above 150% of poverty guideline.
  • Some people pay less interest. The remaining interest will not be added to the monthly payment if the borrower’s payments aren’t sufficient to cover the interest charges for the month.
  • Loan forgiveness terms are shorter. Borrowers who have a student loan balance of $12,000 or less from their undergraduate studies would be eligible to have their loans forgiven in 10 years. This is instead of the current 20-year repayment period. An additional $1,000 borrowed over $12,000 will result in an additional year of payments that would be eligible for forgiveness. For borrowers who have only undergraduate loans, the prevailing caps of 20 and 25 years would apply.

Who would be eligible under the REPAYE proposal

The plan would cover both current and future borrowers. The plan would allow borrowers to continue to be eligible for Public Service Loan Forgiveness.

  • Students currently enrolled Student borrowers with federal loans are eligible for REPAYE plans. Graduate borrowers are eligible for lower payments than undergraduate borrowers.
  • defaulted borrowers —Borrowers in default are those who have not made their payments as per the loan contract. This means that they are usually ineligible to income-driven repayment plans. The new proposal allows those who are behind in their payments to sign up. Borrowers who have a minimum of 75 days late on their payments will automatically be enrolled in a plan.

Parents who have borrowed money through Parent PLUS loans will not be eligible for enrollment.

How to repay student loans

Your credit score can be damaged if you default on student loans. Here are some options if you have trouble paying your student loans

  • Contact your loan servicer. Talk to your loan servicer about your options and how they can help you keep your loans in good standing.
  • You can change your repayment plan
  • Consolidate. Consolidate. Federal student loan holders may apply for a consolidation loan. This consolidates your student loans with one lender and one monthly repayment.
  • You may be eligible for a forbearance or deferment of your federal loans. In certain cases, you might be able defer your federal loans up to three years. Forbearance is a way to delay or reduce your payments up to 12 months if you do not qualify.