If you have no income, how would you like to stop making student loan payments?
Here’s what you need to know.
Sen. Lamar Alexander (R-TN) proposed on the Senate floor today a new proposal for your student loans that could result in zero student loan payments. Alexander, who chairs the Senate Health, Education, Labor and Pensions Committee, proposed to continue student loan relief for student loan borrowers. Alexander’s proposal would work like this:
- No Income? No monthly payment.
- When you start earning income, your monthly student loan payment will be capped at 10% of your discretionary income.
- You get student loan forgiveness after 20 years (undergraduate student loans) or 25 years (for graduate school student loans) on the remaining balance.
- The months where you paid $0 will count toward the 20 or 25 years for student loan forgiveness.
- This proposal applies for existing and new student loan borrowers.
- Borrowers also have one other option: pay off student loans in 10 years. A 10-year student loan repayment plan would be like a mortgage, with equal principal and interest monthly payments until the student loan is repaid.
Alexander’s plan presumably applies to federal student loans only and would simplify the multitude of current federal student loan repayment plans, which can be confusing for student loan borrowers. Essentially, Alexander would replace the nine current student loan repayment plans with only two:
- Income-Driven Repayment plan; or
- 10-year student loan repayment plan
Alexander says these ideas are not new, nor are they his ideas. He credits multiple student loan experts who have testified before the Senate Education Committee as well as senators such as Joe Manchin (D-WV), Rob Portman (R-OH) and Marco Rubio (R-FL), among others.
Simply the FAFSA
Alexander also called for simplifying the Free Application for Federal Student Aid, or FAFSA, from 108 questions to 20-33 questions. Alexander says a simpler FAFSA would provide more Pell Grants and help more low income Americans attend college. By simplifying the FAFSA and student loan repayment system, Alexander estimates the federal government could save $10 billion.
Student Loan Relief After September 30, 2020
Alexander’s proposal comes at a crossroads for student loan borrowers. Alexander notes that legislation called The Student Loan Repayment and FAFSA Simplification Act can end the confusion for student loan borrowers, simplify student loan repayment and help borrowers when current student loan relief from the Cares Act — the $2.2 trillion financial stimulus — which expires on September 30, 2020. Since March 13, 2020, the Cares Act provides several benefits for your student loans:
Alexander says new legislation could provide a solution after September 30, 2020. The Cares Act did not include any student loan forgiveness. Will you get student loan forgiveness? Alexander’s legislation does not include outright student loan forgiveness either, but would include student loan forgiveness similar to current income-driven repayment plans. Senate Majority Leader Mitch McConnell (R-KY) plans to introduce a new stimulus package this week. The stimulus package will include second stimulus checks and other economic priorities. However, student loans —particularly student loan forgiveness — are not expected to be a centerpiece of the new stimulus package.
How to pay off student loans
As Congress considers the new stimulus package, make sure you have a game plan to pay off student loans. Start with these four options, all of which have no fees: