The Biden administration has unveiled a new college student loan repayment plan, known as the Saving on a Valuable Education (SAVE) plan, which aims to reduce or eliminate monthly loan payments for over 20 million borrowers. This plan will be applicable to borrowers with various types of loans held by the Education Department, including direct subsidized and unsubsidized loans, Direct PLUS loans for graduate and professional students, and direct consolidation loans.
In some cases, borrowers with older loans may need to consolidate them into a direct consolidation loan to be eligible for the SAVE plan. However, the Education Department will provide the necessary information for borrowers to complete this process. Interested borrowers can now sign up on the department’s website, with full implementation of the plan expected by next summer.
Under the SAVE plan, borrowers with undergraduate loans will have their monthly payments reduced from 10% to 5% of their discretionary income. For those with both undergraduate and graduate loans, payments will be calculated using a “weighted average” between 5% and 10%. Low-income borrowers, making less than 225% of the federal government’s poverty guidelines, may see their monthly payments entirely eliminated. Borrowers with higher incomes can still expect to save approximately $1,000 a year through this new repayment plan.
Additionally, the plan offers early forgiveness options. Borrowers with balances of $12,000 or less will have the remainder of their loans forgiven after 10 years and 120 payments. For each additional $1,000 borrowed beyond that threshold, an extra year of payments can be added, up to a maximum of 20 or 25 years.
It’s important to note that PLUS loans, taken out by parents on behalf of students, are generally not eligible for this plan. However, the Education Department believes it has the legal authority to implement this new repayment plan, as Congress granted the department the power to define the terms of income-driven repayment plans.
Education Secretary Miguel Cardona views this repayment plan as the country’s “first true student loan safety net” and highlights that the Biden administration has forgiven more debt than any previous administration in history. In total, the Education Department has canceled over $116 billion in student loans for 3.4 million Americans, including public service workers, disabled individuals, and borrowers who faithfully repaid their loans for 20 years without receiving the promised loan forgiveness.
In conclusion, the Biden administration’s SAVE plan offers relief to millions of college student loan borrowers by significantly reducing or eliminating their monthly loan payments. With various eligibility criteria and early forgiveness options, this plan presents a comprehensive solution to the challenges faced by borrowers.
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