Sign up for Biden’s new student loan repayment plan.

Sign up for Biden's new student loan repayment plan.

The New SAVE Plan: A Lifeline for Student Borrowers

The burden of student loans has long weighed down individuals seeking a valuable education. However, relief is on the horizon with the introduction of the new SAVE—Saving on a Valuable Education—plan. This program, recently made available for application, promises to ease the financial strain for borrowers while also streamlining the application process.

To get started with the SAVE plan, borrowers only need to invest approximately 10 minutes of their time. During the application, they must provide specific details from their tax returns to determine eligibility. Interestingly, borrowers also have the option to self-certify their income directly with their loan servicer, streamlining the process even further.

The implementation of the SAVE plan brings much-needed convenience to the application process. The Internal Revenue Service (IRS) can automatically populate several sections of the application by sharing financial information with the U.S. Department of Education. Additionally, borrowers can opt for automatic recertification each year, a significant departure from the previous time-consuming process.

Once the application is submitted, borrowers will receive a confirmation email. They can expect a response within a few weeks. It’s worth noting that applying during the beta phase of the program eliminates the need for reapplication once the plan officially launches in August. However, the Education Department advises that the application may be intermittently available during the beta testing period, allowing borrowers to try again later if necessary.

Federal student loan payments had been on hold for over three and a half years due to the COVID-19 pandemic. However, they are set to resume in October. The Education Department assures borrowers that applications submitted this summer will be processed in time for their first payment due date. These developments come in the wake of the U.S. Supreme Court blocking broader student loan forgiveness efforts by the Biden administration at the end of June.

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By focusing on income-driven repayment (IDR) plans, the SAVE program offers borrowers potentially significant relief. These changes could result in lower loan repayments while eliminating any specified end date. In an IDR plan, a borrower’s annual income and family size determine the monthly student loan payment. The amount is recalculated each year to account for any changes, and any remaining debt is forgiven after 20 to 25 years.

So, how does the new IDR plan of the SAVE program work? First, it reduces the percentage of discretionary income that borrowers need to repay. Additionally, it shortens the repayment period for borrowers with loan amounts of $12,000 or less. These borrowers now receive forgiveness after making 10 years of payments. For borrowers earning less than approximately $32,800 (less than $67,500 for a family of four), monthly bills can be as low as $0. Furthermore, if borrowers make full payments each month, no unpaid interest will accrue.

According to the Education Department, these changes could result in a significant reduction—up to 40%—in the amount the average borrower will pay over their lifetime. Importantly, this reduction provides much-needed assistance to the lowest-earning borrowers, ensuring their college debt becomes substantially easier to manage. It’s a positive step towards empowering individuals seeking higher education without crippling financial consequences.

While interest on federal student loan balances will start accumulating again in September, payments are due to begin in October. However, it’s important to note that in July, the Education Department announced the erasure of student debt totaling $39 billion for approximately 804,000 borrowers. This action resulted from a recount of payments made to address historical failures in administering the IDR program. So far, President Biden has forgiven over $116.6 billion in student loan debt, benefitting more than 3.4 million borrowers.

The SAVE program and its IDR plan mark a significant turning point in the student loan landscape. With simplified applications, reduced repayment periods, and considerable forgiveness potential, these changes breathe hope into borrowers’ lives. Finally, there is light at the end of the tunnel for individuals seeking financial relief while pursuing a valuable education.