The Obama administration has said up to 5 million more borrowers will become eligible for the expanded program.
More student-loan borrowers are expected to gain access this year to a repayment plan that cuts monthly debt payments to a small share of their income.
The plan, called Repaye for “revised pay as you earn,” is based on the “pay as you earn” repayment program, which became available to some student-loan borrowers nearly three years ago.
The new plan grew out of an executive order signed last year by President Obama, who aimed to expand the pool of borrowers helped by the pay-as-you-earn program. Concern has been growing about the economic impact of student debt and mounting defaults.
In 2013, nearly 70 percent of graduating college seniors had student loans, and their average debt was more than $28,000. The Obama administration has said up to 5 million more borrowers will become eligible for the expanded program.
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The new version will be available to anyone with federal direct loans, regardless of when students receive the loans and what their debt-to-income ratio is. (The original pay-as-you-earn plan is available only to those who borrowed after 2007 and requires borrowers to have high debt relative to their income.)
“It’s an improvement,” said Christine Lindstrom, higher-education director with the U.S. Public Interest Research Group.
Participants in the program will have their monthly loan payments capped at 10 percent of their discretionary income.
Any loan balance remaining after 20 years of payments will be forgiven, if the students have only undergraduate loans. If they borrowed money for graduate school, the forgiveness comes after 25 years.
Suzanne Martindale, a lawyer for Consumers Union who participated in the negotiations on rules for the new plan, said many consumer advocates preferred a 20-year forgiveness period for all borrowers, but that adding five years for graduate borrowers was a compromise because of the Education Department’s concern over the impact on its budget.
Here are some questions to consider about income-related repayment plans:
Q: When can I enroll in Repaye?
A: The Education Department is expected to issue final rules before Nov. 1, and borrowers are likely to be able to enroll before the end of the year. The department is weighing public comments submitted over the summer and could revise the plan.
Q: What does discretionary income mean, in terms of my student-loan payments?
A: Discretionary income, for the purposes of Repaye and some other federal loan-repayment programs, refers to what you earn above 150 percent of the federal poverty line, or above $17,655 for 2015. So if your income is $30,000, your discretionary income used to figure the monthly payment would be $12,345.
(Under Repaye, a borrower with income of $25,000 and undergraduate loans totaling $30,000 at 6 percent would have a starting monthly payment of $61, compared with $333 under a standard, 10-year repayment plan, according to an example from the Education Department.)
Q: Does this mean other income-related repayment plans will go away?
A: No, at least not right now. Borrower advocates say Repaye may, eventually, serve as a simpler model to replace what is currently a confusing menu of income-related repayment options, all with varying criteria.
But in the meantime, you may still benefit from other options, depending on the type of your loans, when you borrowed them and other details.
For instance, loans made under a now-discontinued program in which the federal government backed loans made by private borrowers are not eligible for Repaye, unless you consolidate them into a new loan. But such loans are eligible for a version of another program known as income-based repayment.
You can apply online at studentloans.gov for the plan that offers the lowest payment for which you are eligible.