Student loans are now an important part of paying for college and help millions of students reach their academic and career goals.
But as tuition costs rise and student debt reaches levels that have never been seen before, the weight of loan repayment is becoming a bigger worry for people all over the country.
Because he knows this, President Biden has made some surprising choices about loan repayment plans that will start before 2025.
The debates surrounding student loans continue
The ongoing debate about student loans is about how to balance the need to give people access to higher education with the need to make loans affordable for borrowers.
Reform supporters say that the rising cost of tuition and the growing amount of student debt can not go on forever, leaving graduates with years or even decades of trouble paying back their debt.
Critics, on the other hand, say that student loans are necessary to make sure that everyone can go to college and that forgiving or canceling debt could lead to moral hazard and put an unfair burden on taxpayers.
Questions have also been raised about the usefulness of income-driven repayment plans, the part of for-profit colleges, and the duty of both the government and institutions to deal with the crisis.
Finding a solution that supports both education and long-term financial well-being remains hard and controversial, especially since more students are taking out loans to pay for college.
Another thing to think about is how much pressure students feel to get a degree so they can have a chance at getting a job. When people talk about student loans, they also talk about how the whole education and job system needs to be changed to give young adults more chances to support themselves without going to college.
The current outlook for student loans in 2025
When the new Trump administration starts in 2025, there will likely be a lot of changes in how students pay back their loans. As one of his last policy decisions as president, Biden has started a race against time to bring back two old programs that helped people with their student loans. After all of his hard work, the PAYE and ICR programs will be back in effect starting next week.
When Trump takes office again, both the SAVE and PSLF student loan programs are likely to be phased out. The people who were supposed to benefit from SAVE are now stuck in debt because Trump came back and there was a court case that stopped the program from going into effect. But the return of the PAYE and ICR programs could be the lifeline that students need before President Biden moves into the White House.
What are the options for students?
There are a lot of different Income-Driven Repayment (IDR) plans out there, but the Income-Contingent Repayment (ICR) plan is old and expensive. It gives borrowers two payment options, so they can pick the one that makes their monthly payment the lowest based on their budget.
The first choice uses a formula that considers many factors to change the payments you would make over a standard 12-year repayment plan based on your unique situation. The second choice requires you to pay 20% of your extra income, which is divided by 12 to get your monthly payment.
Parent PLUS borrowers and people whose debt is small compared to their income are two types of borrowers who might benefit from ICR. For those who are in the SAVE program and very close to having their debt forgiven, this plan might not work for them.
The Pay As You Earn (PAYE) plan is better if you are getting close to being forgiven under SAVE. Even though it costs more than SAVE, it is still less than ICR. Forbes says that people who get SAVE pay about $135 a month, while people who get the standard plan pay over $700. PAYE also lets you get rid of your loan completely after 20 years of on-time payments.
Not only are student loan programs going to be different in 2025, but so will other financial programs. Also, changes are coming to Social Security, which will make things difficult for both young people and the elderly in the coming year.
