The Biden administration is set to launch a revolutionary student loan repayment plan today, designed to offer much-needed relief to borrowers as student loan payments restart amid significant political challenges. Termed the "game changer" by Biden’s domestic policy adviser, Neera Tanden, the new plan, dubbed SAVE (Saving on a Valuable Education), is the latest attempt to tackle the student loan crisis following the Supreme Court’s rejection of an outright debt cancellation of up to $20,000 for some borrowers earlier this year. The SAVE plan promises to make student loans manageable, thereby potentially unlocking major life milestones such as starting a family, buying a home, or even launching a business for millions of Americans currently stifled by their student loans.
SAVE, an income-driven repayment program, bases the size of payments on income and family size, offering debt forgiveness after a certain period for borrowers who consistently meet their monthly payments. Starting from July 2024, approved borrowers will experience a 50% reduction in their monthly payments for undergraduate loans, dropping from 10% to 5% of disposable income. For borrowers with both graduate and undergraduate loans, payments will be between 5-10% of their income, based on their initial loan amounts. This plan is estimated to save a typical borrower approximately $1,000 per year. Additionally, those with an initial loan amount of $12,000 or less will see their required payment period dramatically reduced, from 20 years to just 10 years for undergraduate loans.
Biden Administration Announces New Student Loan Repayment Plan
The Biden administration has unveiled a new student loan repayment plan, touted as a significant relief for millions of borrowers. This comes as student loan payments are set to resume, despite political opposition.
The SAVE Plan: A Game Changer?
The Saving on a Valuable Education (SAVE) initiative is an income-driven repayment program that determines payment size based on income and family size. Starting in July 2024, monthly payments for undergraduate loans will be halved to 5% of disposable income under the SAVE plan. Borrowers with both graduate and undergraduate loans will pay between 5-10% of their income, contingent on their initial loan amounts. The administration projects the average borrower could save around $1,000 annually on their payments.
Potential Immediate Benefits for Borrowers
Elements of the SAVE program are set to kick in sooner to offer reprieve to those gearing up to resume student loan payments, which were halted for over three years due to the pandemic. Starting this summer, approved individuals earning less than $32,805 will see their monthly payment drop to $0 until their income increases, a provision that also applies to families of four earning less than $67,500. Additionally, interest accrual will be capped for those approved for the SAVE plan, effectively cancelling any interest not covered by their monthly payments.
Supreme Court Rejection and Political Backlash
Despite the Supreme Court rejecting a previous Biden administration program that proposed to cancel between $10,000 and $20,000 in federal loans for low-income individuals, the White House has since sought alternative means of addressing the student debt crisis. The overhaul of the popular REPAYE program into the new SAVE plan is one such measure. However, this move has not been without criticism, with conservative opponents labeling the relief as an abuse of taxpayer money.
Plan Eligibility and Application Process
Most borrowers with direct subsidized or unsubsidized loans are eligible for the benefits provided by the SAVE plan. Those with older loans may need to consolidate them into a direct consolidation loan to qualify. Prospective applicants can visit StudentAid.gov/SAVE to apply. Current enrollees in the REPAYE plan will automatically have their monthly payments adjusted to the SAVE plan before payments restart in October.
The Biden administration estimates that SAVE could benefit more than 20 million student borrowers, particularly assisting low- and middle-income families struggling with debt.
The Biden administration’s SAVE plan is a bold move towards alleviating the student loan crisis, offering significant potential savings for borrowers. Despite political hurdles and criticism, the plan’s income-driven approach could provide much-needed relief for many, especially low- and middle-income families. The success of the initiative, however, will only be clear once it is fully implemented and its impacts can be assessed.