While the Supreme Court struck down President Joe Biden’s student loan forgiveness program last month, a separate and significant change to the federal student loan system is moving ahead.
By the time payments resume in October after the yearslong pandemic pause, some borrowers will be able to enroll in a new income-driven repayment plan that could lower their monthly bills and reduce the amount they pay back over the lifetime of their loans.
Once the plan, which Biden is calling SAVE (Saving on a Valuable Education), is fully phased in next year, some people will see their monthly bills cut in half and remaining debt canceled after making at least 10 years of payments.
Unlike Biden’s blocked one-time forgiveness program, the new repayment plan will provide benefits for both current and future borrowers who sign up for it.
But the benefits will come at a cost to the government. Estimates vary, depending on how many borrowers end up enrolling in the plan, ranging from $138 billion to $361 billion over 10 years. As a comparison, Biden’s student loan forgiveness program was expected to cost about $400 billion.
The SAVE repayment plan has gone through a formal rulemaking process at the Department of Education. The agency has previously created several other income-driven repayment plans in the same manner without facing a successful legal challenge.
Some parts of the SAVE plan will be implemented this summer and others will take effect in July 2024. Here’s what borrowers need to know.
Currently, there are several different kinds of income-driven repayment plans for borrowers with federal student loans. The new SAVE plan will essentially replace one of those, known as REPAYE (Revised Pay As You Earn), while the others are phased out for new borrowers.
Under these plans, payments are based on a borrower’s income…
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