Biden’s relief package could bring student debt relief to millions

President Joe Biden’s new student loan forgiveness backup plan, called Saving on a Valuable Education (SAVE), hopes to find a different way to provide debt relief for millions of borrowers in the wake of the court ruling supreme in Department of Education v. Brown.

According to the White House, the SAVE plan will cut undergraduate loan payments in half compared to other income-driven repayment plans. The new plan will replace the existing Revised Pay-As-You-Earn (REPAYE) plan.

Anyone registered with REPAYE will automatically be registered with SAVE. And any borrower with a direct loan in good standing will be eligible. The application website is already online.

The Ministry of Education says the new plans will bring debt relief to millions of people. This could mean that a single borrower who earns less than $15 an hour will not have to pay off their student debt. It also says borrowers will see their total payments per dollar borrowed drop by 40% under the new plan. And payments per dollar will drop 83% for those with the lowest projected incomes, but those with the highest projected incomes would see a 5% reduction.

A new grace period

Biden announced a plan to allow borrowers to sign up for a “temporary 12-month” grace period from October 1, 2023 through September 30, 2024. While not officially called a pause on student loan debt, the on-ramp would mean that missed payments would not immediately damage the borrower’s credit, lead to wage garnishments or risk default.

In practice, this means that interest on student loan debt will accrue from September 1 and payments will be due from October. But borrowers will have a one-year term that avoids the harshest late payment penalties. The Department of Education is still developing the rules for this program.

The Wall Street Journal, citing analysis by Wells Fargo, said yesterday that a typical student loan payment would be between $210 and $314 per month once payments resume. But that preceded the announcement from the White House.

The president also announced changes to caps on the level of discretionary income paid out for student debt. Under the new plan, borrowers will not need to pay more than 5% of their discretionary income on loans, which is lower than the previous cap of 10%.

SAVE plan details

Under the new plan, the amount of income protected from payments on the SAVE plan will increase from 150% to 225% of the Federal Poverty Guidelines (FPL), meaning that a family of four who earn less than $67,500 per year will not be required to make payments.

The Ministry of Education will stop charging monthly interest not covered by the borrower’s payment on the SAVE plan so that borrowers no longer see their loans increase due to unpaid interest. Additionally, married borrowers who file taxes separately will not be required to include their spouse’s income in calculating their payment.

Borrowers will pay between 5% and 10% of their income depending on the initial principal balance of their loans, and those with an initial balance of $12,000 or less will receive a rebate after 120 payments, with 12 additional payments added for each Additional USD 1,000 borrowed above. this level. However, the full SAVE regulation will not come into full effect until July 1, 2024.

Higher Education Act

In a 6-3 ruling on Friday, the Supreme Court blocked Biden’s original plan to write off $430 billion in student loan debt. The president said his administration would pursue another path to achieve its goal.

“I think the court’s decision to cancel my student debt relief program was a mistake, was a mistake,” Biden said. “We will use every tool at our disposal to provide you with the student debt relief you need.”

The new student debt relief workaround cites the Higher Education Act (HEA) as the basis of its authority. The 1965 Act was designed to provide support for students and post-secondary institutions. Biden added that using the HEA would allow Education Secretary Miguel Cardona to “compromise, waive or cancel loans under certain circumstances.”