Future student borrowers will also get some relief from the Biden administration’s federal plan to write off student loans.
This relief will come in smaller and more manageable monthly payments. The plan includes lowering the rate that people have to pay on their discretionary income until their student loans are paid off.
What is discretionary income? Discretionary income is money left over after paying taxes and basic living expenses. You can use it as you wish, such as for dining out, paying for streaming services, or tickets to movies or sporting events.
Don’t confuse this with disposable income, which is the money you have after paying taxes only. Because you haven’t paid for your essentials yet, your disposable income is greater than your discretionary income.
How Will Biden’s Plan Cut Discretionary Income?
The idea is to increase the amount of what is considered non-discretionary income, is the income needed to cover necessary expenses, including taxes, food, and housing, and protect it from redemption.
As non-discretionary income increases, discretionary income decreases. The White House says it “guarantees that no borrower earning less than 225% of the federal poverty line — which is the annual equivalent of the $15 minimum wage for a single borrower — will have to make a monthly payment.”
“Debt and no degree”:Biden writes off up to $20,000 student loan debt: real-time updates
Student Loan Forgiveness:What you need to know about Biden’s debt plan.
What else is suggested to cut my monthly payments to make them more manageable?
The other part of the relief comes from reducing the percentage of your discretionary income that determines what you pay monthly.
Borrowers will only have to pay 5% instead of 10% of their discretionary income each month on student loans. Those with graduate and student loans will pay at the weighted average rate.
NOT ENOUGH:Student loan forgiveness by Biden is a good start, but not good for borrowers like me.
INFLATION FUEL:How soaring inflation complicates Biden’s decision to forgive student loan debt
When will more information about the student debt relief offer be released?
The proposed rules will be published in the Federal Register in the coming days, and the public is invited to comment on the draft rule within 30 days.
Medora Lee is a USA TODAY money, markets and personal finance reporter. You can reach her at [email protected] and sign up for our free Daily Money newsletter for personal finance tips and business news every morning, Monday through Friday.