Today, the White House announced the official launch of what President Joe Biden is calling “the most affordable student loan plan ever”—the Saving on a Valuable Education (SAVE) plan—and kicked off an outreach campaign to encourage eligible borrowers to sign up for it.
The Biden-Harris Administration is seeking to overhaul student loan repayment plans by reducing the amount owed each month and curbing unpaid interest to make payments more affordable in the wake of the U.S. Supreme Court’s decision announced in June to block its controversial student loan forgiveness plan.
Per the White House Fact Sheet released today, the SAVE plan is an income-driven repayment (IDR) plan that calculates payments based on a borrower’s income and family size—not their loan balance—and forgives remaining balances after a certain number of years. The SAVE plan will cut many borrowers’ monthly payments to zero, will save other borrowers around $1,000 per year, will prevent balances from growing because of unpaid interest, and will get more borrowers closer to forgiveness faster.
The Fact Sheet added that the SAVE plan builds on actions the Biden-Harris Administration has already taken to support students and borrowers, including cancelling more than $116 billion in student loan debt for 3.4 million Americans.
“Today I’m proud to announce a new program called the SAVE Plan. It’s the most affordable student loan plan ever,” President Biden said in a YouTube video posted today.
The Biden-Harris Administration estimates that over 20 million borrowers could benefit from the SAVE plan, which they can sign up for at StudentAid.gov/SAVE.
Per the Fact Sheet, here’s what the SAVE Plan will do:
• Cut payments on undergraduate loans in half, as borrowers with undergraduate loans will have payments reduced from 10% to 5% of their discretionary income. Those who have undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income based upon the original principal balances of their loans.
• Bring many borrowers’ loan payments to $0 per month. A borrower’s monthly payment amount is based on their discretionary income—defined under the SAVE plan as the difference between their adjusted gross income (AGI) and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for their family size. This means a single borrower who makes about $15 an hour will not have to make any monthly payments. Borrowers earning above that amount would save around $1,000 a year on their payments compared to other IDR plans. The Department of Education estimates that more than 1 million additional low-income borrowers will qualify for a $0 payment. “If your annual income is less than $30,000–your monthly payment will be $0 until it gets above $30,000,” Biden said in the video.
• Ensure that borrowers never see their balance grow as long as they keep up with their required payments. The Department of Education will stop charging any monthly interest not covered by the borrower’s payment on the SAVE plan. As a result, borrowers who pay what they owe on this plan will no longer see their loans grow due to unpaid interest. For example, if a borrower has $50 in interest that accumulates each month and their payment is $30 per month under the new SAVE plan, the remaining $20 would not be charged as long as they make their $30 monthly payment. The Department of Education estimates that 70% of borrowers who were on an IDR plan before the payment pause would stand to benefit from this change. Coinciding with the launch of the SAVE plan, the White House Council of Economic Advisers released a new blog post that models how the income benefit of the SAVE plan could prevent a lower-income borrowers’ balance from increasing by nearly 78% over a 20-year repayment period.
• Provide early forgiveness for low-balance borrowers. IDR plans require all borrowers, even those who only attended school for a single term, to repay their loans for at least 20 or 25 years before receiving forgiveness of any outstanding balance. Under the SAVE plan, borrowers whose original principal balances were $12,000 or less will receive forgiveness after 120 payments (the equivalent of 10 years in repayment). For each additional $1,000 borrowed above that level, the plan adds an additional 12 payments for up to a maximum of 20 or 25 years. For example, if a borrower’s original principal balance is $14,000, they will see forgiveness after 12 years. Payments made previously (before 2024) and those made going forward will count toward these maximum forgiveness timeframes.
Biden said in his video it takes about 10 minutes to apply for the SAVE plan. “Sign up now so you can lower your monthly payments in advance of payments resuming this fall,” he said.
The federal student loan payment pause and interest waiver enacted near the beginning of the COVID-19 pandemic in March 2020—and since extended several times—will end with interest set to begin accruing Sept. 1, 2023, and borrowers beginning to make payments again in October.
According to recent research from Empower, 42% of Americans say they will consider curtailing retirement savings as they look for ways to make ends meet when federal student loan payments resume in October.
SEE ALSO:
• Unforgiven: Supreme Court Strikes Down Biden’s Student Loan Forgiveness Plan
• Student Loans Preventing College Grads From Major Life Milestones
• 401(k) Contribution Cutbacks Likely When Student Loan Payment Pause Ends
• Biden Unveils Latest Student Loan Relief Plan