SAVE: How does Biden’s new student loan repayment plan work? How to sign up
The White House launched its new plan to reduce monthly student loan repayments for borrowers which will also provide a shorter path to debt forgiveness.
The Biden administration as part of its efforts to make student loan debt less of a burden for borrowers announced a framework for a new income-driven repayment plan. On Tuesday, the President announced the launching of the “the most affordable student loan plan ever.” Saving on a Valuable Education (SAVE) plan promises to cut monthly payments for borrowers to just 5 percent of disposable income and shortening the path to debt forgiveness to as little as 10 years’ worth of payments.
“My fellow Americans, you know I am a firm believer in education beyond high school and that should be a ticket to the middle-class,” Biden said. “Not a burden that weighs people down for decades to come trying to pay their debt.”
How does Biden’s new student loan repayment plan work?
The new plan from the White House amends the terms of the Revised Pay As You Earn (REPAYE). The proposed regulations increases 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 upon the 2022 guidelines for a single borrower working fulltime.
So, a single borrower earning less than $32,800 would have their monthly payments reduced to zero dollars. The same would be true for a borrower in a household of four with an annual income below $67,500. Under the most generous current income-driven repayment (IDR) plans the amounts are around $20,400 and just above $41,600 respectively.
The thresholds will be higher in Hawaii and Alaska and those whose income exceeds them could see savings of at least $1,000 per year compared to other IDR plans. This is because under the new plan, the amount that 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. Those who have both undergraduate and graduate loans will pay 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. That includes 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
Take effect summer 2023
- 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 only takes about 10 minutes. The government’s new plan for student loan repayment is income-driven, and can be applied for on the Student Aid Income-Driven Repayment (IDR) Plan Request webpage will allow borrowers to start submitting applications for the program.
For those borrowers who are currently registered under the REPAYE program, the transition to the SAVE program will happen automatically.
Those who wish to simplify the annual process of recertification can sign up to provide approval for the secure disclosure of tax information. That way Student Aid can automatically access your latest IRS tax return saving you the time and effort of mannually entering the data. Next year you will automatically be reenrolled if you are signed up.