Written By Adam S. Minsky, JD
As student loan payments resume in the coming weeks, the Biden administration is officially launching a new income-driven repayment (IDR) plan. Officials are calling the Saving on a Valuable Education (SAVE) plan the “most affordable repayment plan ever” for student loan borrowers, and the program is now formally available after a brief soft launch.
“Starting today, millions of borrowers can reduce their monthly student loan bills by enrolling in the SAVE plan, the most affordable repayment plan in history,” U.S. Secretary of Education Miguel Cardona declared in a statement on Tuesday. “The SAVE plan is another huge step forward in President Biden’s tireless efforts to fix the broken student loan system, reduce the burden of student debt on working families, and put borrowers first.”
“The SAVE plan is a sea change for students, making college loans far more affordable than ever before,” Under Secretary James Kvaal assured. “It will cut payments to zero for borrowers making roughly $15 an hour, save all other borrowers at least $1,000 a year compared to other income-driven repayment plans, and stop runaway interest that leaves folks owing more than their initial loan.”
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Key features of the new student loan repayment plan
The new SAVE plan will have several beneficial components that collectively will help millions of borrowers:
- A larger poverty exemption of 225% of the federal poverty limit based on the borrower’s family size (compared to 100% to 150% with other IDR plans) means that a larger cohort of borrowers will be able to pay nothing on their loans while remaining in good standing. Single borrowers making $32,800 or less, and borrowers with a family size of four who make $67,500 or less, will all have $0/month payments under SAVE. Other borrowers will have their monthly IDR payments reduced, due to the larger poverty exemption.
- A more favorable repayment formula will allow many borrowers with undergraduate student loans to reduce their payments. For borrowers who have only undergraduate loans, their monthly IDR payment may be reduced by over 50% compared to current IDR options. Borrowers with a mix of undergraduate and graduate school debt will see a smaller reduction.
- An interest subsidy will eliminate excess interest accrual for borrowers whose monthly payments are not high enough to cover interest. This means that borrowers enrolled in SAVE will no longer experience negative amortization, where loan balances increase over time.
- Borrowers with smaller initial starting balances will see accelerated student loan forgiveness in as little as 10 years. Education Department officials estimate that 85% of community college borrowers will be debt-free within 10 years under the SAVE plan.
- Married borrowers will be able to file taxes separately from their spouse to exclude spousal income, unlike the REPAYE plan. A spousal co-signature on the IDR application will no longer be required.
- A streamlined and automated annual income recertification process will give borrowers the option to consent to participate in a data-sharing tool between the IRS and the Education Department to facilitate auto-renewals of the SAVE plan, removing the need for borrowers to affirmatively recertify their income.
The SAVE plan’s features will be phased in over the next year, with core elements – including the higher poverty exemption, interest subsidy, and marital tax filing flexibilities – available immediately.
Application for new student loan repayment plan is now live
After completing beta testing, the Biden administration this week is formally launching the new IDR application, which includes the option to enroll in SAVE. The Education Department appears to have addressed several technical issues that became apparent during beta testing, including restrictions on the ability of borrowers to select a specific IDR plan.
The new IDR application, “takes about 10 minutes to fill it out,” said President Biden in a recorded statement released this week. “And if you’re eligible for the SAVE Plan, sign up now so you can lower your monthly payments in advance of payments resuming this fall. I’ve said it before and I’ll say it again. As long as I am president my Administration will never stop fighting to deliver relief to borrowers and bring the promise of college to more Americans.” Borrowers can enroll online.
Borrowers who are already enrolled in the REPAYE plan will be automatically converted to the SAVE plan. Many of these borrowers have started receiving messages from their loan servicers saying that they have been transitioned into the SAVE plan.
“Your existing Revised Pay As You Earn (REPAYE) Plan was replaced by the Saving on a Valuable Education (SAVE) Plan,” reads the standardized notices sent to borrowers. “The SAVE Plan provides the lowest monthly payments of any Income Driven Repayment (IDR) plan available to nearly all student borrowers.”
Borrowers on other plans would need to affirmatively apply for the SAVE plan. Only Direct federal student loans qualify for SAVE.
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Biden administration to launch massive outreach effort
The Biden administration is set to begin a tremendous, coordinated outreach effort to get as many people as possible to sign up for the new SAVE plan.
“In the coming days, the Department and our servicers will reach out directly to nearly 30 million borrowers to invite them to use the new IDR application to apply for the SAVE plan,” announced the Education Department in a statement on Tuesday. “This is part of the Department’s robust outreach campaign to provide information and resources to borrowers to support them when the payment pause ends this fall. The Department has already been in direct touch with 43 million borrowers and will continue to coordinate with servicers and outside partners to provide additional high-quality communications with specific, actionable information directly to borrowers.”
The administration will also work with key nonprofit and advocacy organizations to broaden the outreach.
“To help ensure borrowers are able to take full advantage of resources available from the Department, the Biden-Harris Administration is launching a nationwide outreach campaign called ‘SAVE on Student Debt’ in partnership with leading grassroots organizations,” said the Department. “This public-private partnership builds upon the robust direct outreach underway from Federal Student Aid and loan servicers by leveraging strategic partnerships across public, private, and nonprofit sectors to support borrowers and ensure they take full advantage of the benefits provided by the SAVE plan. This partnership will be led by the Department in collaboration with Civic Nation, the National Association for the Advancement of Colored People (NAACP), the National Urban League (NUL), Rise, the Student Debt Crisis Center, UnidosUS, and Young Invincibles.”
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