Biden administration rolls out modified student loan repayment program
'The Saving on a Valuable Education (SAVE) plan is an income-driven repayment program that will cut some borrowers payments to $0 a month.'
Projected costs over ten years range from the Department of Education’s estimate of $137.9 billion to $361 billion.
The Biden administration launched a new student loan repayment program after the Supreme Court shot down its debt forgiveness program that would have forgiven up to $20,000 in loans per borrower.
The Saving on a Valuable Education (SAVE) plan is an income-driven repayment program, meaning that borrowers’ monthly payments will be reconfigured according to their income and family size. The new plan exempts borrowers from having to make monthly payments if their income is equal to 225% of the poverty line, which equates to $32,800 for an individual or $67,500 for a family of four, up from 150% under Revised Pay As You Earn (REPAYE).
[RELATED: Biden forgives $39 billion in student loan debt via administrative tweaks]
For those that exceed the 225% threshold, their payments will be based on how much their income exceeds the poverty line.
Some additional features of the plan will go into effect July of 2024. Borrowers who have incomes that exceed 225% of the poverty line will have their monthly loan payments cut in half from 10% to 5% of their discretionary income, or the difference between what they make and the defined threshold.
Remaining balances on loans with original principal balances of $12,000 or less will also be fully forgiven if the borrower makes payments for a total of 10 years. The loan will be forgiven after an additional year of payment is made for every $1,000 above this amount. For example, a $13,000 dollar loan would be forgiven after 11 years of payments are made.
Borrowers can begin applying for SAVE through a beta version of the website, just as loan payments paused during the pandemic are set to resume in October. Projected costs over ten years range from the Department of Education’s estimate of $137.9 billion to $361 billion, according to the University of Pennsylvania (UPenn).
[RELATED: Biden’s income-driven student loan repayment plan will cost taxpayers $230 billion]
Citing the Bennett Hypothesis, UPenn’s analysis explains that colleges may increase tuition in response to this plan. Believing students can afford the increases through the loans and federal subsidies, according to a theory originally proposed by former Education Secretary William Bennett. The UPenn report also contends that students will likely borrow more of the loan money available to them as a result.
The White House, the Department of Education, and the University of Pennsylvania have been contacted for comment. This article will be updated accordingly.
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