One year after President Donald Trump signed his core domestic policy package into law, student loan borrowers are bracing for a major overhaul of the federal lending system that will begin this week. Many were already struggling when the Biden administration attempted to enact sweeping student debt relief in the wake of the Covid pandemic, but the proposal encountered Republican blowback.
New Repayment Plans
Under the Trump administration’s changes, borrowers will experience a range of effects with some seeing little difference in what they owe each month while many lower-income borrowers will be hit the hardest with increases. The new direction is part of the Trump administration’s broader goal of slashing funding from government assistance programs across federal agencies.
The federal student aid program will be transferred from the Education Department to the Treasury Department, which administration officials say is better equipped to get debtors into compliance because it collects defaulted debt for federal and state agencies. The White House has accused the Biden administration of focusing too heavily on student loan forgiveness and debt cancellation instead of ensuring loans are repaid in an effort to curtail federal spending and pressure colleges to lower tuition costs.
Impact on Borrowers
Student borrower Lori Correa, of North Carolina, is in knots over the changes and weighing her options. After using an online loan simulator, she said she estimates her monthly student loan payments would jump from $150 to $713 under one of the new plans because of changes in how payments are calculated.
As a single mother of three in the early 2000s, Correa switched careers from waitressing to legal studies, earning her associate, bachelor’s and master’s degrees while maxing out her student loans in the hope that she would advance in better-paying jobs. She earns about $60,000 a year as a real estate agent’s personal assistant and still owes roughly $200,000 in student debt, which has been financially crippling when coupled with housing costs and medical bills over the years.
There are four key changes that borrowers should know. Typically, student borrowers have been able to choose from an array of repayment plans that either came with fixed terms or were based on income. But those legacy plans are going away, and beginning this week, borrowers who take out a student loan or seek to consolidate existing ones must select between only two new options.
The first, known as the Repayment Assistance Plan, is being touted by the Education Department as a replacement for the Biden-era Saving on a Valuable Education, or SAVE, plan. Under the new plan, borrowers’ monthly payments will be based on adjusted gross income — or their total annual income minus certain tax adjustments, including deductions for dependent children.
The other repayment option for borrowers with new loans will be the Tiered Standard Plan, in which payments will be calculated based on one’s outstanding loan balance at a set fixed term from as little as 10 years and up to 25. That may be a faster way for borrowers to pay off their debts and save money on interest compared with the income-based option, which can carry higher interest costs.
Original reporting: NBC10 Boston — read the source article.
