Biden’s SAVE Plan: Reducing Student Loan Repayment Costs
In the wake of the Supreme Court’s decision to strike down President Biden’s student loan forgiveness program, there is a glimmer of hope for federal student loan borrowers. A new income-driven repayment plan, called SAVE (Saving on a Valuable Education), is moving forward, providing eligible borrowers with a chance to lower their monthly loan bills and reduce the overall amount they must repay.
The SAVE plan, which is set to be fully implemented next year, offers significant benefits to both current and future borrowers who qualify. Those who enroll in the plan this summer will witness changes to their monthly bills before payments resume in October after the yearslong pandemic pause.
Unlike the one-time forgiveness program that faced a legal challenge, SAVE is designed to provide long-term support to borrowers. After making at least 10 years of payments, some individuals will experience their monthly bills being cut in half, and the remaining debt will be canceled.
However, while the SAVE plan brings much-needed relief to borrowers, it comes with a substantial cost to the government. Estimates project the expenses to range from $138 billion to $475 billion over the next decade, making it a significant investment in the future of education and student loan relief.
The Department of Education has undertaken a formal rulemaking process for the SAVE plan, which is a similar approach used successfully for previous income-driven repayment plans. Some elements of the plan will take effect this summer, while others are scheduled to come into play in July 2024.
Key Aspects of the SAVE Repayment Plan:
- Eligibility: The plan is available for borrowers with federally held student loans, including Direct subsidized, unsubsidized, and consolidated loans, as well as PLUS loans for graduate students. Parents with federal PLUS loans are not eligible.
- Application Process: Eligible borrowers can apply for the SAVE plan through the Department of Education’s application for income-driven repayment plans. The application may be intermittently available during a beta testing period but will not require resubmission once the full website launches later in the summer.
- Lower Payments: Under the SAVE plan, borrowers can see their monthly payments reduced significantly, potentially as low as $0. Single borrowers earning $32,800 or less and borrowers with a family of four earning $67,500 or less may qualify for this option.
- Protected Income Threshold: The SAVE plan recalculates discretionary income, leading to lower payments by shielding more income from student loan payments.
- Interest Limit: Unpaid interest will not accumulate if borrowers make full monthly payments, ensuring their balances do not increase over time.
- Automatic Recertification: Borrowers can allow the Department of Education to access their latest tax return, streamlining the application process and facilitating annual recertification for the payment plan.
- Faster Forgiveness: Borrowers will see their debt forgiven after 10 years of payments, with the option to consolidate loans to receive partial credit for previous payments toward forgiveness.
- Automatic Enrollment: Struggling borrowers who are 75 days late on payments will be automatically enrolled in the best income-driven plan for their situation, provided they grant secure access to their tax information.
In conclusion, the introduction of the SAVE repayment plan presents a promising solution for federal student loan borrowers seeking financial relief. With the potential for reduced monthly bills, faster forgiveness, and automatic enrollment for struggling borrowers, the plan aims to ease the burden of student loan debt for millions of Americans. As the application process opens, eligible borrowers are encouraged to take advantage of this opportunity to secure a valuable education without the overwhelming financial strain.
