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.
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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'm an expert in student loan policies and the SAVE plan introduced by the Biden administration for student loan debt relief. My expertise stems from in-depth research and analysis of various government initiatives related to education financing. Now, let's delve into the concepts mentioned in the article.
The article discusses the SAVE plan, a crucial component of President Biden's efforts to provide relief to federal student loan borrowers. Here are the key concepts covered:
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SAVE Plan Overview:
- The SAVE plan is a significant vehicle for President Biden's student loan debt relief efforts.
- U.S. 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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Debt Cancellation Process:
- The Biden administration plans to fast-track a change, originally scheduled for July, to erase the debts of federal student loan borrowers who initially borrowed less than $21,000.
- The cancellation is based on the amount initially borrowed, not the current owed amount.
- Borrowers who 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 new income-based repayment plan called SAVE.
- The forgiveness window increases by one year for each additional $1,000 of debt.
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Targeted Group of Borrowers:
- The policy change aims to help a vulnerable group of federal student loan borrowers, characterized by low incomes.
- About three-quarters of them receive Pell Grants, and approximately one-third first attended a community college.
- More than 3 in 5 borrowers with defaulted loans originally borrowed less than $12,000.
- Many of these borrowers left school before completing a degree.
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Loan Forgiveness Criteria:
- The new policy builds a bridge to borrowers who have spent less time in the student loan system.
- Borrowers need to enroll in the SAVE plan to qualify for fast-tracked forgiveness.
- As of early January, 6.9 million borrowers have enrolled in SAVE, with over half making incomes low enough to qualify for a $0 monthly payment.
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SAVE Plan Benefits:
- SAVE plan exempts more of a borrower's income from the monthly payment calculation compared to previous plans.
- Interest no longer accumulates beyond what a borrower can afford to pay each month.
- The plan promises multiple windows for loan forgiveness, resulting in lower overall payments compared to old plans.
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Republican Opposition:
- Republicans in Congress, including Virginia Foxx, criticize the SAVE plan, alleging it is a desperate move by President Biden to garner votes.
- They argue that the plan could worsen the student debt situation.
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Biden's Commitment:
- Despite opposition, President Biden is committed to the SAVE plan and has stated that he would veto any bill aimed at stopping it.
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Department Challenges:
- The announcement follows challenges faced by the Department of Education, including a shaky launch of the new Free Application for Federal Student Aid (FAFSA) form and a funding crisis.
In summary, the SAVE plan is a comprehensive initiative by the Biden administration to provide faster debt forgiveness for a specific group of federal student loan borrowers, with a focus on low-balance and community college students. The plan has faced criticism but is seen as a significant step toward addressing student loan issues.
