Although the Supreme Court has ruled that President Biden's plan to forgive as much as $20,000 in student loan debt per borrower cannot proceed, the administration has already proceeded with a few other student loan relief measures. While there are already legal challenges to the new plan, there's a good chance that the relief efforts will be implemented -- so here's what borrowers need to know about them, and how they could result in eventual loan forgiveness for you.
Biden's SAVE plan: the short version
The Biden administration finalized details about its new income-driven repayment plan, which it calls the SAVE (Saving on a Valuable Education) plan. There are a few key provisions of the SAVE plan you should know about:
- Maximum monthly payments are capped at 5% of the borrower's discretionary income for undergraduate student loans, or 10% for graduate loans.
- The definition of discretionary income is increasing from 175% to 225% of the federal policy level, making less of borrowers' income considerable for repayment purposes.
- If the required payment doesn't cover the interest that accrues on the loan, the unpaid interest will not be added to the loan balance.
- Any unpaid balance is forgiven after 20 or 25 years of income-driven repayment from undergraduate and graduate loans, respectively.
- Loans with an initial balance of $12,000 or less will be forgiven after just 10 years of required payments.
To be perfectly clear, the SAVE plan isn't the part of the president's plan that is being legally challenged right now. In fact, the rough details of the new repayment plan were outlined in the same press release that revealed the original student loan forgiveness plan.
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Fixing the income-driven repayment forgiveness program
Separately, in a plan announced over a year ago, the Department of Education is making a one-time adjustment to the number of payments borrowers are credited for toward income-driven repayment (IDR) plan loan forgiveness, which, as mentioned, happens after making 20 or 25 years of required monthly payments.
Specifically, the account adjustment will give borrowers credit for:
- Any months in a repayment status, even if they weren't enrolled in IDR plans.
- Periods of forbearance, including the COVID-19 repayment pause.
- Any months spent in deferment prior to 2013, other than in-school deferments.
- Economic hardship or military deferments in 2013 or later.
- Any time in repayment, deferment, or forbearance on earlier loans if they have since been consolidated.
The Department of Education claims this will add at least three years of payment credit to the records of over 3.6 million borrowers, and in some cases, it could add much more.
To be clear, this is the part of the student loan relief efforts that is currently facing legal challenges. Opponents claim that it isn't fair to reward borrowers for times when they weren't making payments, such as deferment or forbearance.
How do you take advantage?
If you're already enrolled in the REPAYE plan, which is the most popular existing income-driven plan, you will be enrolled in the SAVE plan automatically. Your student loan servicer can confirm if you're already enrolled. If you're not already enrolled in REPAYE, you can sign up for the SAVE plan at StudentAid.gov/IDR.
For the credit for past IDR payments, the additional months will be added to your account automatically. The first group of eligible borrowers was already notified -- this was the headline about $39 billion in loan forgiveness -- and other notifications will be sent out every two months until all borrowers' accounts are updated.
The bottom line is that the SAVE plan and the payment count adjustment could result in lower student loan payments and a faster path to loan forgiveness for borrowers who have been paying their student loans for years.
