Biden Plans to Help With Student Debt
The Biden-Harris administration is putting their money where their mouth is, finally launching a new income-based student loan repayment plan meant to benefit low- to moderate-income borrowers on Aug. 22, just in time for bills to be due again in October after a three-year pause. Originally proposed in January, the new payment plan — dubbed Saving on a Valuable Education, or SAVE — serves to help undergraduate and graduate students pay off their federal student loans, as well as keep as much of their discretionary income as possible.
A person’s discretionary income is the money left over after tending to the most basics, i.e. rent, food, etc. Under the old federal loan payment plan — Revised Pay as You Earn, or REPAYE — a borrower’s monthly payment would range anywhere from 10 percent to 15 percent of their discretionary income. SAVE, in comparison, seeks to protect more income for basic needs; an undergraduate’s monthly payment would be reduced to five percent of discretionary income, while a graduate student’s monthly payment would remain at 10 percent. This benefit will not be available until July 2024.
However, if a borrower makes less than $15 an hour (or $32,805 or less a year), then that borrower is eligible for $0 monthly payments. Similarly, someone in a household of four with an income below $67,500 is also eligible for $0 monthly payments. This allows low-income individuals and families to focus on meeting their basic needs.
Furthermore, parents who have borrowed federal student loans on behalf of their children are not eligible to enroll in the SAVE plan. Parents must enroll in an income-contingent repayment plan, which will take 20 percent of discretionary income over a 25-year period. Any outstanding balance after that time period will automatically be forgiven by the Department of Education.
For undergraduate students with federal student loan debt of $12,000 or less, monthly payments will be required for a period of ten years. The remaining balance will be canceled. For students with debt above $12,000, every additional $1,000 equals an additional year of monthly payments. If a student’s debt balance is $25,000, for example, $13,000 more than the allotted $12,000, then they can expect an additional 13 years of monthly payments before any remaining debt is canceled. Undergraduate students with a loan balance of more than $12,000, however, will be given a maximum of 20 years before their debt is canceled, regardless of how many additional years of monthly payments you’re supposed to have. Likewise, graduate students will have a maximum of 25 years before their debt is canceled.
In terms of interest rates, if the monthly payment does not cover the interest owed, the Department of Education will cancel the uncovered portion. So if your interest is $50, and you only pay $40, then the remaining $10 will be canceled. Furthermore, for those with monthly payments of $0, the interest amount will automatically be canceled.
The full benefits of the SAVE plan will not go into effect until July 2024 — primarily cutting payments to five percent discretionary income on undergraduate loans. Fortunately, there are three big components of the plan that are readily available. First, reducing over a million borrowers’ monthly payments to zero. Second, the new treatment of unpaid interest. Lastly, married borrowers who file their taxes separately will not be required to include their spouse’s income in their monthly payment calculations, nor will they be required to include their spouse in their household count.
Anyone, regardless if they are a delinquent borrower with a history of missing payment deadlines, can apply for the SAVE plan. If a borrower on a previous payment plan goes 75 days without making a payment, they will automatically be enrolled in the SAVE plan.
Despite Republican lawmakers’ fight against the new plan — they claim that it burdens taxpayers — and the Supreme Court axing Biden’s original plan to cancel up to $20,000 in debt per borrower — a massive federal student loan forgiveness, according to Chief Justice John Roberts, was not permitted by the HEROES Act’s broadly-worded statutory text. Over four million people have already enrolled in the SAVE program as of Sept. 6.
“With the SAVE plan,” says Education Secretary Miguel Cardona in a call with The New York Times reporters, “we are making a promise to every student. Your payments will be affordable. You’re not going to be buried under a mountain of interest, and you won’t be saddled with a lifetime of debt.”
You can apply to enroll in the SAVE plan by logging into your Federal Student Aid account at www.studentaid.gov.
Photo courtesy of Anna Rose Layden / New York Times.
