Recently, over 75 million student loan borrowers have enrolled in the U.S. government's latest repayment plan, the SAVE plan, since its launch in August. President Joe Biden announced the cancellation of federal student loans for nearly 153,000 borrowers under this plan. To qualify for forgiveness, borrowers must have made payments for at least 10 years and originally borrowed $12,000 or less.
The SAVE plan, introduced last year, aims to replace existing income-based repayment plans. It offers more borrowers the opportunity to reduce their monthly payments to $0 and potentially lower payments compared to other plans.
One beneficiary, a 34-year-old interior designer from Raleigh, North Carolina, shared that the SAVE plan has halved her family's student loan payments, allowing them to allocate funds towards daycare for their children.
Understanding Income-Driven Repayment Plans
The U.S. Education Department provides various repayment plans for federal student loans, including income-driven options. These plans adjust monthly payments based on income and family size, capping payments at 10% of discretionary income and forgiving any remaining debt after 20 or 25 years.
Key Features of the SAVE Plan
The SAVE plan stands out by offering $0 payments for borrowers earning less than 225% of the federal poverty line and preventing interest accrual as long as monthly payments are made. Starting July 2024, undergraduate loan payments will be capped at 5% of discretionary income, with a maximum repayment period of 20 years for undergraduate loans and 25 years for graduate loans.
Eligibility and Application Process
The SAVE plan is open to all student loan borrowers in the Direct Loan Program who are in good standing. Borrowers can apply through the Education Department's website using the Income-Driven Repayment Plan request.
Future Forgiveness and Additional Programs
Biden's proposed plan includes relief for borrowers paying loans for 20-25 years, automatic forgiveness for eligible borrowers not enrolled in income-driven plans, and loan cancellation for those impacted by for-profit colleges. Borrowers should explore programs like Public Service Loan Forgiveness and Borrower Defense for further assistance.
While relief under the SAVE program is ongoing, the Education Department will discharge loans on a rolling basis for eligible borrowers. Legal challenges may arise regarding broader loan cancellation efforts.
Financial literacy support for this article is provided by the Charles Schwab Foundation, aimed at enhancing educational reporting on financial matters.
