How the Biden administration’s new student-loan debt plan works

Should you apply for Biden’s SAVE plan? Tune into Dave & Dujanovic at 11:20 a.m. to learn more. 

SALT LAKE CITY — Some 4,000 Utahns will receive student-debt relief from the federal government. Others will be eligible for an income-driven repayment plan. The Biden administration said it will be able to pay out $39 billion across the country in promised student loan relief. 

The Biden administration’s new student-loan debt plan reduces the cap of discretionary income used to determine loan payments, said Jessica Oiler, the vice president for student access and success at Weber State University. 

The U.S. Department of Education said the decision will impact 804,000 borrowers. 

Oiler said the White House plan looks to lower the cap on discretionary income from the current 10% to 5% for student borrowers.

Income-driven repayment plans

Oiler told Dave & Dujanovic that an income-driven repayment plan takes into account up to 10% of what a borrower’s monthly income is, she said. 

“There are actually four different versions of it, which is why it’s sometimes a little bit confusing to students,” said Oiler. 

Oiler said repayments are calculated differently depending upon which repayment plan a borrower is on. 

“There’s a whole lot of ambiguity for students, even when they’re signing up for those loans in the first place,” Oiler said. 

Oiler said Biden’s new proposal is looking to clear up some of the ambiguity. 

Currently, loan interest is ballooning, and even if someone is not making monthly payments, they are still accruing monthly interest. This can cause people to end up owing more than they started with, according to Oiler. 

Negative amortization, or making minimum payments that don’t cover a loan’s interest, can cause loans to balloon, costing borrowers thousands of dollars more than they borrowed or causing them to never be able to repay their loan. 

According to Forbes, income-driven repayment plans can be confusing to navigate for borrowers and servicers. 

Oiler said this is a way to address the student-loan crisis.

“I do think that there is some onus out there that we allowed students to take on this much debt and that they’re in this place,” said Oiler. 

Student-debt relief changes

The Biden administration made changes to its plan after the Supreme Court struck down the original plan in June. The Supreme Court ruled that the plan was not authorized by Congress. 

The U.S. Department of Education has emailed borrowers who still qualify for forgiveness. 

Related reading: 

• Utah leaders respond to Supreme Court’s student loan relief decision
• Supreme Court rejects Biden’s plan to wipe $400 billion in student loans
• The US has approved $42 billion in loan forgiveness for public service workers. Here’s what to know