Biden launches new student loan repayment plan.
Biden launches new student loan repayment plan.
Biden Administration Launches New Student Loan Repayment Plan
The Biden administration has introduced a beta version of a student loan repayment plan called Savings on a Valuable Education (SAVE), aimed at providing relief to college students who have taken out federal student loans. This new plan replaces the Revised Pay As You Earn (REPAYE) program.
Under the SAVE plan, borrowers’ monthly payments are determined based on their income and family size. The Department of Education (DOE) has stated that individuals who were enrolled in the REPAYE program will automatically qualify for SAVE.
One of the key advantages of the SAVE plan is its convenience. Unlike previous plans, borrowers do not need to re-apply each year. The StudentAid.gov website can access their tax returns, enabling it to determine which plans and benefits they qualify for.
The SAVE plan covers various types of federal student loans, including direct subsidized loans, unsubsidized loans, consolidated loans, and PLUS graduate loans. Similar to the REPAYE program, the SAVE plan has a payment cap based on the borrower’s discretionary monthly income. Starting in the summer of 2024, the cap will be reduced from 10% to 5%.
Moreover, the SAVE plan includes an increase in the student loan repayment income exemption. Borrowers now won’t owe any loan payments if their income falls below 225% of the poverty line. This means that a single borrower earning $32,800 or less or a family of four earning $67,500 or less will be exempt from loan payments. For borrowers earning more than these amounts, they will save at least $1,000 per year compared to current income-driven repayment plans.
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The amount of money borrowers can save under the SAVE plan depends on their annual income and family situation. For example, a borrower with no dependents and an annual income of $38,000 will save $91 per month, according to the DOE.
Another significant feature of the SAVE plan is that borrowers’ loan balances will not increase due to unpaid interest, as long as they make their monthly payment. This means that if a borrower pays $30, and $50 in interest accumulates, the $20 difference will not be added to their loan balance.
Additionally, the SAVE plan eliminates the requirement for spousal income inclusion for married student loan borrowers who file separately. This removes the need for a spouse to co-sign an income-driven repayment plan.
The introduction of the SAVE plan comes during a time of high anxiety for student loan borrowers, with national student loan debt exceeding $1 trillion. According to White House estimates, more than 45 million borrowers across the country shoulder this immense burden, making educational loans the second-largest category of consumer debt after mortgages.
The SAVE plan offers some relief to borrowers following the Supreme Court ruling that ended President Joe Biden’s original student loan forgiveness plan. It decreases the required monthly payment to 5% of discretionary income, down from 10%. Additionally, borrowers who earn less than 225% of the federal poverty level are no longer obligated to make monthly payments. This revised plan also grants loan forgiveness in half the time for borrowers with original loan balances of $12,000 or less, reducing the repayment period from 20 years to 10 years.
Overall, the SAVE plan offers a glimmer of hope to student loan borrowers, providing increased flexibility, reduced payment burdens, and even loan forgiveness for those facing significant financial challenges. This initiative represents a step toward alleviating the burden of student debt and enabling individuals to pursue their dreams without being weighed down by excessive financial obligations.
Resources:
- How to Prepare to Start Paying Student Loans Again
- $39 Billion in Federal Student Loans Will Now Be Forgiven
- Student Loan Forgiveness: What You Need to Know
