New student loan repayment plans could cut monthly payments for 20 million borrowers
Washington — The Biden administration on Tuesday announced a new college student loan repayment plan that it estimates will lower — or eliminate — monthly loan payments for more than 20 million borrowers.
The new repayment plan, called the Saving on a Valuable Education (SAVE) plan, will be available to many borrowers with loans held by the Education Department. However, eligibility will depend on the type of loan a borrower has. The new plan applies to borrowers with direct subsidized and unsubsidized loans, as well as Direct PLUS loans for graduate and professional students, and direct consolidation loans, senior administration officials said Monday.
A department spokesperson said that some borrowers with older loans must first consolidate them into a direct consolidation loan in order to be eligible for the new plan, but borrowers will be able to obtain information about this from the department.
Borrowers may now sign up on the department's website, and the plan is expected to be fully implemented next summer.
For borrowers with undergraduate loans, those enrolled in the SAVE plan will have their monthly payments reduced from 10% to 5% of their discretionary income. If someone has both undergraduate and graduate loans, payments will be calculated using a "weighted average" between 5% and 10%.
The Education Department estimates that more than 1 million low-income borrowers could see their monthly payments completely eliminated, since they make less than 225% of the federal government's poverty guidelines, which for a single borrower is $32,805 per year and $67,600 for a borrower with a family of four.
For borrowers making more than this, the new repayment plan is estimated to save about $1,000 a year, according to the Education Department.
The department offered the example of a nurse making $77,000 a year, married with two kids, who would see monthly payments drop from $267 dollars a month to $40 a month.
The department also said it would "stop charging any monthly interest not covered by the borrower's payment" under the new plan.
However, the officials said loans taken out by parents on behalf of students — referred to as PLUS loans —are "generally not eligible for this plan."
Early forgiveness is another new facet of this plan, too. Borrowers with balances of $12,000 or less will see the rest of their loans forgiven after 10 years when the borrower has made 120 payments. "For each additional $1,000 borrowed above that level, the plan adds an additional [one year of payments] for up to a maximum of 20 or 25 years," the department said.
This new repayment plan comes after President Biden's plan to cancel $10,000 of student loans for millions of Americans was blocked by the Supreme Court in June, when it rejected the administration's argument that Education Secretary Miguel Cardona had the power to forgive student loan debt.
The spokesperson told CBS News that Education Department officials are "confident in our legal authority" to implement this new repayment plan because "Congress gave the Department of Education the authority to define the terms of income-driven repayment plans."
In announcing this repayment plan, Cardona called this the "first true student loans safety net in the country" and also boasted that the Biden administration has "forgiven more debt than any other administration in history."
Altogether, the Education Department said the Biden administration has canceled more than $116 billion in student loans for 3.4 million Americans, including public service workers, disabled Americans, and borrowers who repaid their loans for 20 years but never received the loan forgiveness they were promised.