Biden cancels $1.2 billion in student loan debt: who qualifies for the new plan?
The White House has cancelled another $1.2 billion in student debt through the expansion of the SAVE program. Who qualifies?
During an event in Culver City, California, on Wednesday, President Biden described the changes to the Saving on a Valuable Education (SAVE). “Before I took office, student borrowers had to pay 10 percent of their discretionary income on a monthly basis” towards their student debt, said the president. While this level of spending towards their debt was possible for some borrowers, many could not reach the level necessary to avoid interest accruing on their loans. The Biden administration has brought the level down to five percent, and that calculation is made after accounting for their living expenses.
How does Biden’s new student loan repayment plan work?
The plan from the White House, announced late last summer, amended the terms of the Revised Pay As You Earn (REPAYE). The proposed regulations increase the amount of income protected from repayment from 150 percent of the Federal poverty guidelines to 225 percent. That level is roughly the equivalent of a $15 hourly wage based on the 2022 guidelines for a single borrower working full-time.
If a borrower earns less than $32,800 per year, their monthly payments can be reduced to zero dollars. Similarly, a borrower in a household of four with an annual income below $67,500 will also be eligible for the same benefit. Currently, the most generous income-driven repayment (IDR) plans offer reductions to around $20,400 and just above $41,600. However, the thresholds will be higher in Hawaii and Alaska, and borrowers whose income exceeds them could see savings of at least $1,000 per year compared to other IDR plans.
Under the new plan, the amount borrowers would be required to pay above the increased level of 225 percent will be half of the most generous IDR plan. Payments on loans borrowed for undergraduate studies will be reduced to just 5% of discretionary income. For those who have both undergraduate and graduate loans, the payment will be a weighted average of between 5 percent and 10 percent of their income based on the original principal balances.
To ensure that borrowers enrolled in these repayment plans don’t continue to see their balances grow month after month, the new regulations will stop unpaid interest from accumulating if monthly payments are made, including those who qualify for zero-dollar monthly payments.
While the SAVE plan goes into effect this summer, not all the features will be available immediately. Student Aid details additional parts of the SAVE plan that will take effect in July 2024.
The Saving on a Valuable Education (SAVE) plan
Already taken effect:
- Guarantee that no borrower earning under 225% of the federal poverty level, about the annual equivalent of a $15 minimum wage for a single borrower, will have to make a monthly payment.
- Not charge borrowers with unpaid monthly interest, even when that monthly payment is $0 because their income is low.
- Spouse no longer has to co-sign IDR application
Take effect July 2024: highlights
- For undergraduate loans, cut in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income.
- Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less.
- For larger balances, one extra year will be added for every $1,000 over $12K.
How to sign up for the SAVE plan
The application process for the government’s new plan for student loan repayment, which is income-driven, only takes about 10 minutes. To apply for this program, borrowers can visit the Student Aid Income-Driven Repayment (IDR) Plan Request webpage and start submitting their applications. If you are registered under the REPAYE program, your transition to the SAVE program will happen automatically.
If you wish to simplify the annual recertification process, you can sign up to provide approval for the secure disclosure of tax information. This will allow Student Aid to access your latest IRS tax return automatically, saving you the time and effort of manually entering the data. You will be automatically reenrolled next year if you sign up for this.