Deconstructing the Details of the New Student Loan Payment Plan

Student loan debt is a major financial responsibility for millions of Americans, with the average borrower owing over $37,000. In the ever-evolving environment of federal student loans, staying on top of the latest developments is critical. So, what happened to student loan forgiveness? Are there alternative paths to secure loan forgiveness or debt relief? What about repayment plan options? What is the new SAVE student loan repayment plan, and am I eligible?

VantageScore strives to cut through the complexities surrounding federal student loans and help educate borrowers as they prepare for loan payments to restart in October. Below, we delve into what happened to student loan forgiveness and break down key details borrowers need to know about the new SAVE student loan repayment plan.

The Current Landscape of Student Loan Forgiveness

Federal student loan borrowers were hoping, if not expecting, all or some of their federal student loan debt to be forgiven when the Biden-Harris Student Debt Relief Plan was announced in August 2022. In June of 2023, the plan was struck down by the Supreme Court, who ruled the Department of Education (ED) didn’t have the authority to forgive loans on the basis of the HEROES Act. As a result, federal student loan borrowers will not receive broad relief.

Despite this setback, the Biden administration said that it remains committed to finding ways to provide relief to student loan borrowers, and the education department is working on a backup plan to provide broad-based cancellation under the Higher Education Act of 1965. In the meantime, separate efforts, including a new income driven repayment plan have been announced to make loan payments more affordable.

Find additional updates on federal student loan forgiveness here: Federal Student Loan Repayment Resources FAQs & News

Biden Administration Announces Launch of SAVE Repayment Plan

Touted by the Biden-Harris Administration as “the most affordable repayment plan ever created,” the SAVE Plan, or Saving on a Valuable Education plan, is a new income-driven repayment plan (IDR) in which monthly payments are calculated based on the income and family size of an eligible borrower, rather than their loan balance. The remaining balance will be forgiven after a certain number of years.

The SAVE Plan – Key Components

Replacing the Revised Pay as You Earn Plan (REPAYE), the SAVE Plan includes multiple new benefits for student loan borrowers.

• The new plan can significantly decrease your monthly payment amount compared to all other income-driven repayment plans.
  Monthly payments are decreased by increasing the income exemption from 150% to 225% of the poverty line.
  
  
• If you make your monthly payment, your loan balance won’t grow due to unpaid interest.
  
  
• The SAVE Plan excludes spousal income for borrowers who are married and file separately.
  This removes the need for your spouse to cosign your IDR application.
  
  
• Borrowers currently enrolled in the REPAYE Plan will automatically get the benefits of the new SAVE Plan.

Important Details Borrowers Need to Know

• Borrowers who are currently enrolled in the REPAYE Plan will automatically be enrolled in SAVE.
  However, if you are on a different IDR plan, you will need to log in and request enrollment in SAVE if eligible.
  
  
• Your monthly payment amount is based on your discretionary income—the difference between your adjusted gross income (AGI) and 225% of the U.S. Department of Health and Human Services Poverty Guideline.
  
  
• An updated IDR application is now available and includes the option to enroll in the new SAVE Plan. To apply borrowers can select the option for your loan servicer to place you on the lowest monthly payment plan, which will usually be SAVE.
  
  
• Eligible loans for the SAVE Plan include: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate or professional students, and Direct Consolidation Loans that did not repay any PLUS loans made to parents.
  
  
• Borrowers should explore the other available IDR plans to ensure their loan repayment plan best suits their needs and goals. The Department of Education has a loan simulator that helps calculate student loan payments and compare repayment options.
  
  
• There are SAVE Plan benefits that will not go into effect until July 2024.

Additional SAVE Plan Benefits Start in July 2024

It is important for borrowers to be aware that there are benefits of the SAVE plan not yet in effect. These additional benefits will likely further reduce payments and will go into effect in July 2024. Here are a three of the measures scheduled to start in July of 2024:

• Borrowers with only undergraduate loans will have their payments cut in half. (Monthly payments will be reduced from 10% to 5% of income above 225% of the poverty line.)
  
  
• Borrowers with both undergraduate and graduate loans will have lower payments, paying a weighted average of between 5% and 10% of their income based on the original principal balances of their loans.
  
  
• Borrowers on the SAVE plan with original principal balances of $12,000 or less will receive forgiveness of their remaining balance upon making 10 years of payments. The maximum repayment period prior to receiving loan forgiveness rises one year per additional $1,000 (e.g., if your original balance is $15,000, you are eligible for forgiveness after 13 years).

Alternative Paths to Student Loan Forgiveness

While the Biden administration’s plan for broad student loan forgiveness is currently on hold, there are alternative paths to debt forgiveness that borrowers can pursue.

Aside from enrolling in an income-driven repayment plan, one option for eligible borrowers could be to apply for Public Service Loan Forgiveness (PSLF). PSLF forgives the remaining balance on federal student loans for borrowers who work full-time for a qualifying public service employer and make 120 consecutive qualifying payments.

Explore other paths to student loan forgiveness in this extensive article developed by VantageScore in partnership with Dan Currell, former Deputy Under Secretary and Senior Advisor at the U.S. Department of Education: 39 Answers to Student Loan Questions-Paths to Forgiveness

The new SAVE plan offers borrowers a number of benefits over current IDR plans, including lower monthly payments, a faster track to forgiveness, and protection from interest accrual. With student loan payments resuming in a few weeks, it is important borrowers understand their loan and payment details, explore options, are aware of available resources, and stay informed of the latest policy updates to ensure a successful start to repayment and foster financial stability going forward.

Find additional tips for student loan borrowers here:
Student Loan Payments Start in October: 7 Things Borrowers Should do to Prepare

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