By now you’ve probably heard of a student loan forgiveness program.
The Federal Government announced it would grant borrowers with student loans $1,000 in cash each month to pay off their debts.
The program has been around for years and is still popular among young people, but it has only been used a handful of times since the program was introduced in 2015.
Now, that’s about to change.
The Government is launching a new version of the program called the Individual Education Plan (EIP).
EIPs are meant to help students pay off loans faster and with less interest.
The $1k limit is for new borrowers only.
That means the Federal Government has decided to expand the program to all new students who apply, a move that’s expected to save tens of thousands of dollars for the average borrower.
That’s good news for borrowers who don’t want to have to make an upfront payment, but for borrowers with higher incomes who don, it’s a major incentive to work out the best deal possible.
“If you can save the student loan interest on your loan over a period of years, then it’s going to be more affordable and more reasonable for you,” says Michael Withers, founder of student loan lender, Aussie Loan.
That interest rate is currently around 6.2%.
To qualify for the new program, borrowers will have to have at least $18,000 of student debt, with $20,000 or more in debt and be earning between $50,000 and $100,000 a year.
For the first year of eligibility, a new borrower will only get one year of EIP, which is $1.65 per $1 million in debt, and a second year will cost $2,000.
Witherson says the program is also designed to help people who are stuck with student loan debt because they can’t pay it off on time.
“You have to pay it down before you can go on to the next stage of repayment, so you don’t have to get into debt to go through the EIP process,” he says.
EIP is a free program, and it’s only available to borrowers who qualify for a hardship repayment plan that allows them to repay their debt over a set period of time.
For example, if your loan has a maximum payment of $18.8 million and you’re eligible for a $30,000 hardship repayment, you’d need to pay that down over a three-year period to qualify for an EIP.
However, the government says that the program can only be used to pay back a portion of the debt.
“The majority of students will not be eligible for EIP but you will be able to defer the amount of debt you are currently owing up to the first payment,” the government said in a statement.
“Once you have met the threshold for the EIT program, you will not need to repay your student loan and will receive a maximum amount of EIT that will be deducted from your next loan payment.”
The government is also planning to expand its student loan deferment program, the Direct Loan for Excellence, which allows students to defer up to 10% of their loan amount over five years.
The EIP program, which currently only allows people with debt of less than $50.1 million to defer, is scheduled to be rolled out to all borrowers with debt up to $100 million.
There are several reasons why EIP isn’t being rolled out immediately.
First, it would be costly for the government to do so.
EIT payments have a cost of $1 per $100k of debt, but they’re capped at $1 billion.
The government estimates that only 1.2% of EIF borrowers qualify for this program, so the costs of rolling out EIP would be more than $1B.
“With the EIF program being rolled forward for the first time in the next five years, the Government will need to invest significant resources in making EIP as cost effective as possible,” a spokesperson said.
Second, the EIC is only for new students.
The new EIP will only be available to students who have already entered repayment.
That includes people who applied for the program in 2017, 2018, 2019, 2020 and 2021, but not those who applied in 2018, 2021 or 2022.
This means those students would need to have completed repayment in order to be eligible.
“We have worked closely with the banks and financial institutions to ensure that we have a very clear timeline and a clear definition of what this program is and how it will work,” the spokesperson said in an email.
Third, the new EIC program will only allow people to defer 10% for the initial two years of repayment.
If borrowers are not able to meet that 10% limit in that time frame, they will have the option to defer another 10% or apply for another hardship repayment.
“In the case of borrowers with an outstanding debt, the 10% rate will be reduced by 25%