GOT STUDENT LOANS? APPLICATION NOW OPEN FOR NEW STUDENT DEBT RELIEF PLAN OFFERED BY BIDEN ADMINISTRATION

By Miriam Raftery

August 23, 2023  (Washington D.C.) – On Tuesday, the Biden launched an application for a new student loan repayment plan called the SAVE Plan, or  Saving on a Valuable Education Plan. Borrowers can sign up and learn details at https://studentaid.gov/announcements-events/save-plan .

This is a revised plan after an earlier effort to forgive student loans was blocked by the Supreme Court, though Republicans have also filed a challenge to the new plan.

The new SAVE plan calculates repayment based on the borrower’s income family size. According to the White House fact sheet, it will cut many borrowers’ monthly payments to zero,  save others around  $1,000 a year,  and prevent balances from growing because of unpaid interest. 

Specifically, the SAVE plan will:

• Cut payments on undergraduate loans in half. Borrowers with undergraduate loans will have their payments reduced from 10% to 5% of their discretionary income. Those who have undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income based upon the original principal balances of their loans.
  
   
• Bring many borrowers’ loan payments to $0 per month. A borrower’s monthly payment amount is based on their discretionary income—defined under the SAVE plan as the difference between their adjusted gross income (AGI) and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for their family size. This means a single borrower who makes about $15 an hour will not have to make any monthly payments. Borrowers earning above that amount would save around $1,000 a year on their payments compared to other IDR plans. The Department of Education estimates that more than 1 million additional low-income borrowers will qualify for a $0 payment. This will allow them to focus on food, rent, and other basic needs instead of loan payments.
  
   
• Ensure that borrowers never see their balance grow as long as they keep up with their required payments. The Department of Education will stop charging any monthly interest not covered by the borrower’s payment on the SAVE plan. As a result, borrowers who pay what they owe on this plan will no longer see their loans grow due to unpaid interest. For example, if a borrower has $50 in interest that accumulates each month and their payment is $30 per month under the new SAVE plan, the remaining $20 would not be charged as long as they make their $30 monthly payment. The Department of Education estimates that 70 percent of borrowers who were on an IDR plan before the payment pause would stand to benefit from this change. Coinciding with the launch of the SAVE plan, the White House Council of Economic Advisers released a new blog post that models how the income benefit of the SAVE plan could prevent a lower-income borrowers’ balance from increasing by nearly 78% over a 20-year repayment period.
  
   
• Provide early forgiveness for low-balance borrowers. IDR plans require all borrowers, even those who only attended school for a single term, to repay their loans for at least 20 or 25 years before receiving forgiveness of any outstanding balance. Under the SAVE plan, borrowers whose original principal balances were $12,000 or less will receive forgiveness after 120 payments (the equivalent of 10 years in repayment). For each additional $1,000 borrowed above that level, the plan adds an additional 12 payments (equivalent of 1 year of payments) for up to a maximum of 20 or 25 years. For example, if a borrower’s original principal balance is $14,000, they will see forgiveness after 12 years. Payments made previously (before 2024) and those made going forward will count toward these maximum forgiveness timeframes.

The benefits of the SAVE plan will be particularly critical for low- and middle-income borrowers, community college students, and borrowers who work in public service. Overall, the Department of Education estimates that the plan will have the following effects for future cohorts of borrowers compared to the IDR plan, called the Revised Pay-As-You-Earn (REPAYE) plan:

• Borrowers will see their total payments per dollar borrowed fall by 40%. Borrowers with the lowest projected lifetime earnings will see payments per dollar borrowed fall by 83%, while those in the top would only see a 5% reduction.
• A typical graduate of a four-year public university will save nearly $2,000 a year.
• A first-year teacher with a bachelor’s degree will see a two-third reduction in total payments, saving more than $17,000, while pursuing Public Service Loan Forgiveness.
• 85% of community college borrowers will be debt-free within 10 years because of the early forgiveness for low-balance borrowers provision of the plan.
• On average, Black, Hispanic, American Indian and Alaska Native borrowers will see their total lifetime payments per dollar borrowed cut in half.

Borrowers who are already on the REPAYE plan will be automatically enrolled in the SAVE plan and see their payments automatically adjust with no action on their part.

How does this differ from the earlier plan rejected by the Supreme Court?

The plan struck down by the high court was far more sweeping.  It would have provided relief to around 40 million borrowers for people earning below a certain income, of whom 20 million people would have had $430 billion  loans forgiven. The court ruled that a president could not unilaterally make such changes, which would require either action by Congress, or by the Secretary of Education, who could modify existing statutory or regulatory provisions of the Education Act.

The new regulations announced by the Dept. of Education are narrower in scope, providing forgiveness of about  $40 billion in loans, less than a tenth of the $430 billion that the earlier plan sought to provide.

Republicans object, file new lawsuit

Republicans have filed a new challenge, asking a federal court in  Michigan to block Biden’s newly announced plan,  Associated Press  reports. The suit was filed by the New Civil Liberties Alliance on behalf of the Mackinac Center for Public Policy and the Cato Institute.

Republican Virginia  Foxx, chair of the House Education and Workforce Committee, stated when the new plan was first announced last month, “The Biden administration is trampling the rule of law, hurting  borrowers, and abusing taxpayers to chase headlines.”