SAVE plan: which students will see their debt completely forgiven next month?
The Biden administration has announced that student loan debt cancelation through the SAVE plan will start six months early. Here’s who will benefit.
One of President Biden’s campaign promises was forgiving student loan debt. While his administration’s plan of canceling up to $20,000 for a large swath of Americans was blocked by a Supreme Court ruling the Department of Education has come up with some workarounds to ease the burden experienced by many who sought higher education.
One of those is what Biden has touted as “the most affordable student loan plan ever,” called Saving on a Valuable Education (SAVE) plan. Some of the provisions were set to begin in July this year like forgiving up to $12,000 for those borrowers who have made 10 years’ worth of payments toward their student loan debt.
On Friday, President Biden announced that starting in February, six months early, many Americans that are enrolled in the SAVE plan and originally took out $12,000 or less federal student loan debt will be seeing a balance of $0.00 on their account. They will join the 3.6 million who have already received full student debt relief under the Biden administration’s various actions. For larger balances, one extra year will be added for every $1,000 over $12,000 with the maximum cap at 20 years of payments.
There is no action necessary for those currently enrolled in the SAVE plan who are eligible to receive the debt forgiveness. The Department of Education will start notifying borrowers next month who loans are being discharged. The department will also be emailing borrowers not on the SAVE plan who can receive forgiveness as soon as they sign-up. Those with student loan debts that are eligible are “strongly” encouraged to apply for SAVE as soon as possible.
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.
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.