The Biden administration will start accepting applications Tuesday for a new income-driven repayment plan, a fresh effort to shore up student loan borrowers facing a cliff as pandemic-era benefits end.
(Bloomberg) — The Biden administration will start accepting applications Tuesday for a new income-driven repayment plan, a fresh effort to shore up student loan borrowers facing a cliff as pandemic-era benefits end.
The so-called Saving on a Valuable Education, or SAVE, plan is meant to disproportionately focus on low-income borrowers, calculating payments based on income and family size rather than loan balance. Officials said many borrowers’ monthly payments will be reduced to nothing, while others should save around $1,000 per year.
While the economy has remained resilient on the back of a tight labor market and gradually ebbing inflation, student loan borrowers have been a worry for the administration. Expiring relief put in place during the Covid era meant a further stress on big consumer spending decisions, like housing.
“We refuse to go back to those days before the pandemic” when millions per year wouldn’t be able to make payments, Education Secretary Miguel Cardona said on a call with reporters Monday, hailing the SAVE plan as the first true student-loan safety net in the country.
The administration agreed not to extend the three-year moratorium on payments as part of the debt ceiling deal it negotiated with Republicans. That meant almost 27 million borrowers who have a total of $1.1 trillion in student loans in forbearance would need to resume servicing them starting on Oct. 1.
Borrowers enrolled in the SAVE plan with undergraduate loans are set to have their payments decreased to 5% of their discretionary income, from 10%. Those with undergraduate and graduate loans would pay a weighted average that’s 5%-10% of their income, based on original principal loan balances.
The Education Department estimated that more than 1 million additional low-income borrowers will qualify for a $0 monthly payment. The administration said existing programs have canceled more than $116 billion in student loan debt for 3.4 million Americans.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.