New SOAR Act Proposes Income-Based Student Loan Payments, Phases Out PAYE/ICR Plans

This bill, the Savings Opportunity and Affordable Repayment Act, aims to overhaul federal student loan repayment by introducing a new plan called SOAR. Set to launch 180 days after the bill's enactment, SOAR would calculate monthly payments based on a borrower's income and family size, offering potential relief for many while also phasing out some existing repayment options.

Decoding the SOAR Plan: What's Your Monthly Bill?

The core of this legislation is the new SOAR plan. If your adjusted gross income (AGI) is at or below 250% of the federal poverty line (think roughly $75,000 for a family of four in 2023, though this figure changes annually), your monthly payment would be $0. Earn more than that? Your payment is capped:

• 5% of your income above the 250% threshold if you only have undergraduate loans.
• 10% of your income above the 250% threshold if you have graduate loans (or a mix).

There's a minimum payment floor: if your calculation lands between $5 and $10, you'll pay $10. A key feature here is how payments are applied: 50% goes straight to principal, and the other 50% covers fees and interest first, then principal. Plus, if your calculated payment doesn't cover all the accruing interest for the month, the unpaid interest won't be charged – potentially stopping ballooning balances.

The Path to Forgiveness

SOAR also sets timelines for loan forgiveness:

• 10 years (120 payments) if your loans were only for undergraduate study lasting two years or less.
• 15 years (180 payments) for everyone else, including those with graduate loans or longer undergraduate programs.

What counts as a payment is broad: actual payments (even $0 ones based on income), certain deferments or forbearances (like for unemployment or military service), and even payments made under other income-driven plans before switching to SOAR.

Out with the Old: PAYE and ICR Phase-Out

Here's a significant shift: the bill phases out the existing Pay As You Earn (PAYE) and Income Contingent Repayment (ICR) plans. Starting two years after the SOAR Act becomes law, no new borrowers can enroll in PAYE or ICR unless they were already in the plan and meet specific hardship requirements (which aren't fully defined in this text). If you switch out of PAYE or ICR after that date, you can't switch back in. This means future borrowers won't have these specific options available, making SOAR and other existing plans like REPAYE the main income-driven choices.

Keeping Up with SOAR: Annual Recertification

To stay on the SOAR plan, you'll need to verify your income and family size annually. The bill requires borrowers to approve the IRS sharing their tax information directly with the Department of Education, or provide alternative documentation. If you miss the deadline or fail to provide the necessary info, you'll be removed from SOAR and placed on a standard 10-year repayment plan, likely with a higher monthly payment based on your loan balance, not your income. The bill also details how payments are calculated for married couples, depending on whether they file taxes jointly or separately. The Department of Education is tasked with tracking progress and automatically cancelling loans once a borrower hits the required number of payments.