President Joe Biden’s new repayment program – Saving on a Valuable Education (SAVE), has seen an impressive uptake with over 4 million individuals already enrolled. Launched earlier this summer, this initiative is designed to alleviate financial pressure for federal student loan borrowers whose repayments are slated to resume this October following the pandemic-induced hiatus.
The SAVE plan, currently available to a majority of individuals with federal student loans, acts as a lifeline to those grappling with educational debt. Notably, most enrollees were transferred automatically from an older repayment program called the Revised Pay as You Earn (REPAYE).
However, borrowers who were previously not enrolled in the REPAYE plan need to apply for the SAVE plan. To date, the Department of Education has received over 1 million applications. Applications can be made on an ongoing basis, but enrolment by payment resumption in October would require immediate application.
It is noteworthy that as of September 1, interest began accruing again on federal student loans for the first time since March 2020. At that time, rates were effectively zero, with no requirement for monthly payments. Borrowers are likely to receive bills at least 21 days before their October payment due date.
Earlier, President Biden had suggested canceling up to $20,000 in student loan debts for low and middle-income borrowers before repayments resumed. However, the Supreme Court turned down this program in late June. Unlike this cancellation proposal, the SAVE plan promises benefits to both current and future borrowers. Projected to cost $475 billion over a decade, the SAVE program was first announced by Biden’s administration in August last year.
Like its predecessor, the SAVE plan calculates monthly payments based on a borrower’s income and family size, without consideration for the total amount of student debt owed. For instance, a single borrower earning no more than $32,800, or a family of four earning up to $67,500, will have their payments set at $0. Under SAVE, unpaid monthly interest doesn’t accrue, preventing an increase in borrower balance even when a payment falls short of the monthly interest.
Starting next year, SAVE will introduce new features aimed at cutting payments by half for undergraduate borrowers and accelerating the path to debt forgiveness. After making payments for a minimum of 10 years, any remaining balance could potentially be eliminated.
Enrollment in income-driven plans can be done online, with a simulator providing estimates of payments under each plan. While these plans can aid those struggling with monthly payments, the overall debt might increase due to accumulated interest and an extended repayment timeline.
Processing an application typically takes approximately four weeks. If an application cannot be processed in time for an October payment, the borrower can be placed in forbearance, eliminating the need for immediate payment. The Biden administration is actively exploring alternative avenues to provide student debt relief, despite a lack of clarity on eligibility and debt cancellation magnitude.
Despite the lack of a new forgiveness program in place, loan payments are set to resume in October. The current administration, however, approved approximately $116 billion in loan discharges for over 3.4 million people through preexisting loan forgiveness programs by August, providing relief to victims of college fraud, permanently disabled individuals, and public sector employees who have made loan payments over a decade.