How much will student loan borrowers save under Biden’s new plan?

  • Monthly federal student loan payments are set to resume in October
  • Last month, the White House launched a new repayment plan known as SAVE
  • So far, over 4 million people have enrolled in the new plan

WASHINGTON, DC – JUNE 30: U.S. President Joe Biden announces new actions to protect borrowers after the Supreme Court struck down his student loan forgiveness plan in the Roosevelt Room at the White House on June 30, 2023 in Washington, DC. In a 6-to-3 decision, the court ruled the loan forgiveness program — which was projected to help 40 million people and cost $400 billion — was unconstitutional. (Photo by Chip Somodevilla/Getty Images)

(NewsNation) — For the first time in over three years, federal student loan borrowers will be on the hook for monthly payments starting in October, but President Joe Biden is hoping a new income-driven repayment plan will soften the blow.

In August, the Biden administration opened enrollment for the Saving on A Valuable Education (SAVE) plan, which the White House has called the “most affordable student loan repayment plan ever.”

Under SAVE — which calculates payments based on a borrower’s income and family size — millions of Americans will have their monthly payments reduced to $0. The plan also shortens the length of time for certain loans to be forgiven and prevents unpaid interest from piling up.

After Biden’s student loan forgiveness plan was struck down by the U.S. Supreme Court, the revamped repayment option was seen as a potential alternative to provide student loan debt relief.

So far, more than 4 million student loan borrowers are enrolled, and without any eligibility limitations, that number will likely grow.

What’s new under SAVE?

The plan increases the number of people eligible for $0 payments. Individuals who earn less than 225% of the federal poverty line, — $32,800 a year or roughly $15 an hour — won’t have to make payments. Previously, the cutoff was 150% of the poverty line — $22,000 a year for a single person.

Starting next July, borrowers on the SAVE plan will have their payments on undergraduate loans capped at 5% of their discretionary income, down from 10% currently.

The SAVE plan also shortens the length of time for loan forgiveness, particularly for those with smaller loans. Borrowers of $12,000 or less will have the remainder of their loan erased after making 10 years of payments. Under other income-driven repayment plans, 20 to 25 years is typical.

Are interest payments different?

Yes. As long as borrowers meet their adjusted monthly payment, any additional interest on top of that amount will be canceled by the Education Department.

For example, if $50 in interest accumulates each month but someone has a $30 payment, then the remaining $20 would not be charged. Those who qualify for $0 monthly payments are not required to pay any interest.

Those who switch to SAVE but already have unpaid interest won’t see that interest disappear. Instead, it will remain as unpaid interest or be added to the principal balance depending on which plan you’re moving from.

How much could you save?

Like other income-driven repayment (IDR) plans, payments under SAVE are based on your earnings and family size. If either one of those changes, the payment gets recalculated.

Those making over $32,800 a year could save at least $1,000 per year compared to other IDR plans, according to the Biden administration.

On the interest rule alone, the average graduate will save over $5,500 after five years, the White House says. Lower-earning graduates will save even more, closer to $9,000, in interest that otherwise would have been added to their debt.

You can calculate your student loan payments here.

Is the plan in effect now?

Some components of the plan will take effect immediately, while others will be rolled out next summer.

Available now:

  • The higher income threshold for those who qualify for $0 monthly payments.
  • Unpaid interest won’t grow as long as borrowers pay their adjusted monthly payment.
  • SAVE plan excludes spousal income for borrowers who are married and file separately, so a spouse no longer needs to co-sign the application.

Effective in July 2024:

  • 5% payment cap on undergraduate loans
  • Change in maximum loan forgiveness timeframes

How do I sign up?

Borrowers can apply for SAVE online here. Administration officials say the process takes about 10 minutes to complete. After applying, you can monitor the status of your application on your account dashboard.

Applications are expected to take four weeks to process, according to a senior administration official.

Those enrolled in an existing plan known as REPAYE don’t have to do anything and will automatically be moved into the SAVE plan. Borrowers can also sign up by contacting their loan servicers directly.

Are there any drawbacks?

Because monthly payments are based on income, those who make more stand to benefit less from the SAVE plan. There’s also no monthly payment cap, which means some borrowers could end up paying more than other plans.

SAVE also requires borrowers to recertify their income each year. Those who see their salaries increase are likely to see their monthly payments go up too.

Parents who took out student loans on their child’s behalf are ineligible for the SAVE plan as well as other IDR plans.

Could a government shutdown impact student loan repayments?

The federal government has until September 30 to reach a deal to avoid an October 1 shutdown, but if that does happen, you should expect student loan payments to resume as scheduled.

The Education Department has a contingency plan in the event that a government shutdown occurs, although that plan warns operations like servicing federal student loans could only continue for a “very limited time” and may experience “some level of disruption.”

The Associated Press contributed to this report.


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