3 reasons student-loan borrowers could start taking on more debt once Biden’s plan to lower monthly payments goes into effect

College graduation

Biden released a plan in August to reform income-driven repayment plans for student-loan borrowers.
A CBO report this week found the reforms would cost $230 billion over ten years.
It also projected the more generous plan would lead to increased borrowing given the lower cost to take on debt.

Monthly student-loan payments might soon be a lot cheaper for borrowers — but it could be a double-edged sword.

Alongside his announcement of up to $20,000 in student debt relief for federal borrowers in August, President Joe Biden also announced his plan to implement reforms to income-driven repayment plans. The plans are intended to give borrowers affordable monthly payments based on their income with the promise of loan forgiveness after at least 20 years. To date, servicer failures in tracking payments accurately have kept borrowers in repayment far longer than they anticipated.

Rather than creating an entirely new plan, Biden’s proposal would amend the existing Revised Pay As You Earn (REPAYE) plan, which was created in 2016 to make payments more affordable for borrowers. The changes include ensuring borrowers pay no more than 5% of their discretionary income monthly on their undergraduate student loans — down from the current 10% — and shorten the timeframe for receiving loan forgiveness by allowing those who borrowed $12,000 or less originally to receive debt relief after ten years.

While Democratic lawmakers lauded the proposed improvements to IDR plans, Republican lawmakers criticized the proposal, along with its potential cost. That’s why the House Education Committee Chair Virginia Foxx and Senate education committee ranking member Bill Cassidy asked the Congressional Budget Office (CBO) to prepare a report on the costs of Biden’s IDR proposal. CBO released its report on Monday. It estimated the reforms would cost $230 billion over ten years, and if Biden’s broad …read more

Source:: Businessinsider

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