Federal student loan borrowers can expect “the most affordable student loan plan ever”, Biden said in a video address on Tuesday announcing significant changes to the debt from higher education held by over an eighth of the country.
The announcement comes nearly two months after the US supreme court struck down Biden’s original student debt forgiveness plan that would have forgiven $20,000 of federal student debt for borrowers who were Pell grant recipients and up to $10,000 of debt for other borrowers.
The program, named Save (Saving on A Valuable Education), will replace the Revised Pay As You Earn (Repaye) plan, lowering the minimum amount due on student loans for borrowers who enroll in an income-driven repayment (IDR) plan.
Under the old rules, borrowers enrolled in this plan were required to pay at least 10% of their discretionary income, or the difference between their adjusted gross income (AGI) and 150% of the federally designated poverty line. Now, borrowers only have to pay the difference between their income and 225% of the poverty line.
Save will also only require borrowers who make above $30,000 annually to make payments. Those making less or unemployed will not be required to make any minimum payments. Under this new plan, the income of a borrower’s spouse is no longer taken into consideration if the married couple files taxes separately.
Another change to federal student loan repayment rules surrounds interest. Under Save, the amount of interest charged depends on income and family size – not on the total amount of federal student debt owned by the borrower.
Perhaps the most notable change is that a borrower’s debt will not increase due to interest so long as the minimum amount due is paid on time within their income level.
In a statement, the Department of Education said it “will stop charging any monthly interest not covered by the borrower’s payment on the Save plan. As a result, borrowers who pay what they owe on this plan will no longer see their loans grow due to unpaid interest. We estimate that 70% of borrowers who were on IDR plan before the payment pause would stand to benefit from this change.”
Borrowers can enroll in Save online at studentaid.gov/save.