Joe Biden's New Income-Based Student Loan Forgiveness Plan Wipes Out $1.2 Billion In Debt In First Go
Wingnuts shocked, student debt holders happy.
Some 153,000 Americans are getting emails this week from Joe Biden to tell them that their remaining student loan balances have been wiped clean (Washington Post gift link). No, it’s not a giveaway, its just the promised first phase of the Biden Administration’s new loan repayment plan, with the practical acronym “Saving on a Valuable Education” (SAVE).
After the US Supreme Court last year killed off Biden’s broader proposal to forgive up to $10,000 for all student loan borrowers (Or $20K for low-income folks who received Pell grants), the administration tweaked SAVE to serve as a way to get the most Americans out of student debt with the least likelihood of it being overturned by courts. (If you want to get all nitpicky, SAVE was already in the works before that ruling). The administration is still looking at additional options to get debt relief to the most financially stressed borrowers, too.
As we’ve discussed previously, SAVE turbocharges some parts of the Education Department’s previous income-based repayment (IDR) plans. IDR plans let a borrower pay only a portion of what they make monthly, and after a set number of monthly payments (20 to 25 years for most borrowers), the remaining balance of the loan is forgiven. There’s also the Public Service Loan Forgiveness (PSLF) program, which lets public school teachers, government employees, and others get debt forgiveness after just 10 years.
SAVE revolutionizes student loan repayment in several ways, because it
bases the amount borrowers pay each month on a smaller portion of their “discretionary income” than older IDR plans, leaving them more cash for rent and bills and donations to Wonkette. Over four million people are currently paying zero dollars a month right now, a number that will rise in July when the next bit kicks in;
limits (starting July 1) the monthly payment amount to five percent of that discretionary income for undergraduate debt (as opposed to 10 percent in older models), or 10 percent of discretionary income for grad school loans. (For those with a mix, it’s a weighted percentage between five and ten percent). In addition to bringing monthly payments to zero for even more people, many others with lower middle class incomes will save hundreds of dollars a month;
limits interest accumulation, so that any interest not covered by monthly payments doesn’t accrue to the account and leave people with more debt than they started with. That’s effing HUGE, addressing one of the biggest terrors of student debt.
reduces the number of payments borrowers with small loan balances need to make to reach the threshold for their full balance to be forgiven. Folks who borrowed less than $12,000 will have their remaining balance forgiven in just 10 years. For balances above that, an extra year of repayment is added for each additional $1,000 in debt, capped at 20 years for undergrad debt and 25 for grad school debt. You owe $15,000, you reach debt forgiveness after 13 years of payments.
(Updated, how did I forget this?) Instead of having to recertify their income every year, borrowers can opt in to have the IRS send the Education Department their income information so their loan rate can be recalculated automatically. This eliminates another common problem with IDR loans, where people forgot to renew and saw their amount due balloon to the full monthly payment.
So now that we’re 500 words in, here’s what’s happened this week: The new 10-year forgiveness threshold for folks with $12,000 in debt or less was originally supposed to start in July, but back in January the Education Department announced it would start that part of the forgiveness six months early. And here we are, with that first tranche of SAVE loans being written down right now. The notice may even come as a pleasant surprise to some borrowers, since folks in the existing REPAYE IDR plans were automatically moved to SAVE so they could benefit too.
And yes, 2024 is why the emails: Joe Biden wants young voters to know that he’s doing this, writing to borrowers, “From day one of my Administration, I vowed to fix student loan programs so higher education can be a ticket to the middle class — not a barrier to opportunity.”
A White House fact sheet underscores many of the same points in the email messages, noting that Biden has “cancelled more student debt than any President in history – delivering lifechanging relief to students and families – and has created the most affordable student loan repayment plan ever: the SAVE plan.”
In total, the administration so far has forgiven, in a couple dozen or so executive actions, some $138 billion in student debt cancellation for almost 3.9 million borrowers, and those people just can’t seem to stop themselves from doing it again and again. More info and the paperless paperwork to consolidate eligible federal student loans into here.
Let people know about this, folks. It’s a big fucking deal, you could say.
[WaPo gift link / White House fact sheet / SAVE plans at Federal Student Aid]
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Updated with one more nice thing about SAVE: It automates the annual renewal process so people won't see their IDR plans bounce out into regular, higher-cost monthly payments.
30 years ago, I got a Master's in Library & Information Science and I've carried that loan ever since. Librarians are required to have a Master's but we are not paid like it; the majority of librarians are women. My loan servicer told me I wasn't eligible for forgiveness, but I registered with the SAVE plan (relatively easy for a government website) and a few weeks later, they forgave my entire loan because it was more than 20 years old. I was voting for Biden anyway (duh), but I am extra grateful!