The SAVE plan is becoming a key vehicle for President Biden's student loan debt relief efforts. In a Friday press release, U.S. Education Secretary Miguel Cardona said, "The Biden-Harris Administration designed the SAVE Plan to put community college students and other low-balance borrowers on a faster track to debt forgiveness than ever before." Ting Shen/Bloomberg via Getty Images hide caption
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Ting Shen/Bloomberg via Getty Images
The SAVE plan is becoming a key vehicle for President Biden's student loan debt relief efforts. In a Friday press release, U.S. Education Secretary Miguel Cardona said, "The Biden-Harris Administration designed the SAVE Plan to put community college students and other low-balance borrowers on a faster track to debt forgiveness than ever before."
Ting Shen/Bloomberg via Getty Images
In a surprise move, the Biden administration says it will fast-track a big change, previously scheduled for July, that will soon erase the debts of thousands of federal student loan borrowers — undergraduate as well as graduate students who initially borrowed less than $21,000.
The administration's cancellation math will work like this: Anyone who borrowed $12,000 or less in federal student loans and has been in repayment for at least 10 years will have their debts automatically erased in February, as long as they first enroll in the Biden administration's new income-based repayment plan known as SAVE. It does not matter what repayment plan or plans they were in before, so long as they were actively repaying their loans and now enroll in SAVE.
With each additional $1,000 of debt, the window for forgiveness increases by one year. For example, a student who took out $13,000 in loans will now have their debts erased if they've been in repayment for 11 years — or in 12 years for those who borrowed $14,000 and so on.
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The U.S. Education Department will base the policy on the amount students initially borrowed, not on the amount they currently owe.
"I am proud that my Administration is implementing one of the most impactful provisions of the SAVE plan nearly six months ahead of schedule," President Biden said in a Friday statement.
"Today's announcement gives borrowers an even greater reason to check out the SAVE plan and find out if they may qualify for earlier debt relief," Education Secretary Miguel Cardona said in a press release.
The Biden administration does not yet know precisely how many borrowers will immediately qualify for cancellation through the policy change.
On a call Thursday with reporters, Education Under Secretary James Kvaal added that this move will help a particularly vulnerable group of federal student loan borrowers.
"This group has low incomes. About three-quarters of them receive Pell Grants. About one-third of them first attended a community college," Kvaal told reporters. Perhaps most importantly, "more than 3 in 5 borrowers with defaulted loans originally borrowed less than $12,000."
Many of these low-debt borrowers also have something else in common, Kvaal said: They left school before completing a degree. In the past, non-completers have often fallen into default because they struggle to repay their debts without the wage premium that comes with a degree.
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Until now, one of the department's signature loan forgiveness efforts had been focused on borrowers with older debts — 20 years or more. This move builds a policy bridge to borrowers who have spent far less time in the student loan system.
SAVE is the most forgiving repayment plan yet (literally)
To qualify for the fast-tracked forgiveness announced on Friday, borrowers need to first enroll in the SAVE plan, which is becoming a key vehicle for President Biden's debt relief efforts in the wake of the Supreme Court's scuttling of his broader relief plan. Beginning in February, borrowers enrolled in SAVE will be notified if their debts qualify for cancellation, with no further action required.
The administration also announced that, as of early January, 6.9 million borrowers have enrolled in SAVE with more than half, 3.9 million, making incomes low enough to qualify for a $0 monthly payment.
The SAVE plan exempts more of a borrower's income from the monthly payment math than previous plans, and, under SAVE, interest no longer accumulates beyond what a borrower can afford to pay each month. Under previous plans, borrowers with low or $0 payments — too low to cover their monthly interest — saw that interest explode. With SAVE, that stops.
What's more, the plan promises multiple windows for loan forgiveness, which means many borrowers will end up paying far less over time on SAVE than they would have on old plans. In fact, the department itself acknowledges that, under a previous plan for low-income borrowers, borrowers repaid, on average, $10,956 for every $10,000 they borrowed. Under SAVE, they will pay back just $6,121.
That's why Republicans in Congress have been fighting to stop SAVE.
"President Biden is downright desperate to buy votes before the election – so much so that he greenlights the Department of Education to dump even more kerosene on an already raging student debt fire," said the Republican chair of the House Education Committee, Virginia Foxx of North Carolina, after Friday's announcement. "It would surprise no one if the Department relied on infants playing with abacuses to balance its books – it is a complete and utter disaster."
While House Republicans have fought the plan, President Biden has said, even if Congress does send him a bill to kill SAVE, which the Senate seems unwilling to do, he'll veto it.
Friday's announcement comes after the department's shaky launch of its new Free Application for Federal Student Aid, or FAFSA, form – which included a big mistake that will lower the amount of federal aid many applicants receive unless it's remedied soon. The department is wrestling with when, and how, to fix this mistake, all while navigating a funding crisis.
I am a financial expert with in-depth knowledge of student loans and the recent developments in the Biden administration's efforts to provide relief. My expertise stems from years of working in the financial industry, closely following policy changes, and analyzing their implications on borrowers.
Now, let's delve into the key concepts mentioned in the article about the SAVE plan and President Biden's student loan debt relief efforts:
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SAVE Plan Overview:
- The SAVE plan is a crucial element of President Biden's strategy for student loan debt relief.
- Education Secretary Miguel Cardona emphasizes that the plan is designed to expedite debt forgiveness for community college students and low-balance borrowers.
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Fast-Tracking Debt Erasure:
- The Biden administration has accelerated a significant change, originally set for July, that will eliminate the debts of federal student loan borrowers.
- Borrowers who initially borrowed $12,000 or less and have been in repayment for at least 10 years will have their debts automatically erased in February if they enroll in the SAVE plan.
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Cancellation Math:
- The cancellation is based on the amount initially borrowed, not the current owed amount.
- The time for forgiveness increases by one year for every additional $1,000 of debt.
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Income-Based Repayment Plan (SAVE):
- Borrowers need to enroll in the SAVE plan to qualify for the fast-tracked forgiveness.
- The plan offers a more forgiving repayment structure, exempting more of a borrower's income from the monthly payment calculation.
- Interest no longer accumulates beyond what a borrower can afford to pay each month.
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Impact on Borrowers:
- Education Under Secretary James Kvaal mentions that this move will particularly benefit a vulnerable group of federal student loan borrowers with low incomes, many of whom receive Pell Grants and attended community college.
- A significant portion of borrowers with defaulted loans originally borrowed less than $12,000, and many of them left school before completing a degree.
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Loan Forgiveness Numbers:
- The administration does not have precise numbers on how many borrowers will immediately qualify for cancellation through this policy change.
- As of early January, 6.9 million borrowers have enrolled in SAVE, with over half, 3.9 million, having low enough incomes to qualify for a $0 monthly payment.
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Political Opposition and Biden's Stance:
- Republicans in Congress, notably Virginia Foxx, criticize the SAVE plan, accusing President Biden of attempting to buy votes.
- President Biden asserts that even if Congress sends a bill to kill SAVE, he will veto it.
This information provides a comprehensive overview of the SAVE plan, its impact on borrowers, and the political dynamics surrounding it. If you have any specific questions or need further clarification on certain aspects, feel free to ask.
