The U.S. Department of Education (ED) has proposed changes to federal income-driven repayment plans including altering the regulations of the popular Revised Pay as You Earn (REPAYE) income-driven repayment plan. ED would like to combine REPAYE, Income Contingent Repayment (ICR), and Income-Based Repayment plans under a single umbrella term of “Income-Driven Repayment” (IDR).

This proposal intends to fulfill commitments made by the Biden Administration to provide relief to student loan borrowers and overhaul the federal student loan repayment system.

Summary of Changes to Income-Driven Repayment

  • Increase the calculation of the borrower’s payment amount from 150 percent of the applicable poverty guideline to 225 percent
  • Shorten the repayment period so borrowers can qualify for forgiveness earlier AND allow borrowers to receive credit for forgiveness during periods of deferment or forbearance
  • Simplify the income recertification provision so borrowers who fail to recertify are placed into an alternative repayment plan
  • Cease charging any remaining accrued interest each month after applying for the payment

Estimated Impact of New IDR Plan

According to ED’s press release, borrowers should expect to see a 40% decrease in their total payments per dollar. The lowest-earning borrowers could see up to an 80 percent decrease in their payments.

Borrowers in a family of four earning less than $63,400 and individual borrowers earning less than $30,500 per year would qualify for a $0 monthly payment under the new REPAYE plan. The proposed regulation changes would also cut monthly payments on undergraduate loans for borrowers who do not qualify for a $0 monthly payment in half.

The proposed regulations will be open to public comments for 30 days through ED expects the new rules to be finalized later this year.