Student loans: 5 biggest winners of Biden’s new IDR plan

Federal student loan borrowers may soon see their monthly payments cut by at least half — and potentially have their debt forgiven in as little as a decade — due to big changes the Education Department intends to make to one of its existing repayment plans.

The revised IDR plan could help: Borrowers who originally took out $12,000 or less in student debt would have their remaining balance forgiven after 10 years of qualifying monthly payments, down from 20 to 25 years under existing plans. The revised plan subtract 225% of the federal poverty guideline from your income, sheltering more of your earnings. That same $75,000 household would see payments based on just $7,500 of discretionary income. On top of that, undergraduate loan payments would be capped at 5% of discretionary income, instead of at least 10% under current plans, shrinking monthly payments for the example household from $250 to about $31.

Another perk: Borrowers who are at least 75 days late on their payments would also be automatically enrolled in the revised IDR plan. This could help struggling borrowers avoid student loan default in the first place — if they lose their job or earn less than about $32,800 per year as a single tax filer, or less than $67,500 for a family of four, they’ll qualify for $0 monthly payments under the revised plan.

Racial income gaps are behind these estimates. Compared to the median income of white households, Hispanic households earn 75%, American Indian and Alaska Native households earn 64%, and Black households earn 61%, according to data from the 2015-2019 U.S. Census. Borrowers with graduate school debtBorrowers who took out federal loans for graduate school would still see payments shrink, but the boost would be less favorable under the IDR revision than for those with only undergraduate loans.

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