The Federal Government released a new student loan payment plan called Student Loan Safety Net. As the Supreme Court kept the student loan cancellation program blocked for now, the new payment plan is announced. The new student loan payment plan would lower monthly payments for millions of borrowers and would offer multiple options to repay federal loans with more generous terms. For some of the needy borrowers the payments may be paused.
Education Department officials proposed the new plan called “student loan safety net”. According to the department the plan will prevent borrowers from getting overloaded with debt.
Education Secretary Miguel Cardona said, “Student debt has become a dream killer,”. “This is a promise to the American people that, at long last, we will fix a broken system and make student loans affordable.”
The loan payment freeze was offered during the COVID-19 pandemic, but now it is nearing an end as it would last till June this year. Biden Administration has announced the new plan while the student loan cancellation plan is held blocked by the Supreme Court.
What Student Loan Safety Net Offer?
According to the existing payment plans, borrowers are required to pay 10% of their discretionary income. Also, those earning less than $20,400 can freeze their payments. But the proposed plan caps undergraduate student loans at 5% of their discretionary income, hence cutting half of the payment loans.
Also, the new student loan plan by the federal government allows loan borrowers who are earning less than $30,600 per annum to freeze their payments.
The proposal also minimizes the number of years of payments. Existing plans promise to cancel the remaining debt after 20 years of payments. In student loan safety net plan, it is proposed to erase remaining balance after 10 years for $12,000 or less in loans.