Biden’s new student loan forgiveness plan could relieve $39 billion in debt. What to know

More than 800,000 student loan borrowers will have $39 billion in debt forgiven, the Biden administration announced Friday.

Here’s what you should know.

Friday’s announcement followed two things:

1. It’s been a few weeks since the Supreme Court shot down the $400 billion student loan forgiveness plan that would have reduced or canceled federal student loans for 43 million people. Borrowers would have been eligible for $10,000 in relief, or up to $20,000 for Pell Grant recipients, if they made less than $125,000 or under $250,000 for households.

2. Biden announcing the new SAVE plan that cuts or gets rid of payments entirely and means balances won’t grow as long as borrowers keep up with payments. His administration is also pursuing a new path to provide student relief based on the Higher Education Act.

The Saving on a Valuable Education Plan does the following:

• Cuts the amount borrowers have to pay from 10% to 5% of discretionary income.

• Raises how much income is considered non-discretionary, meaning borrowers earning under 225% of the federal poverty level (or about $15 an hour) will not have monthly payments.

• Forgives loan balances after 10 years of payments (down from 20 years) for those who originally borrowed $12,000 or less.

• Doesn’t charge unpaid monthly interest so loan balances don’t grow, as long as you make monthly payments.

Student loan payments have been paused since March 2020. They’re set to resume in October, with interest resuming in September. Interest hasn’t been accumulating since the pause began.

Here are three things you should know about the latest plan announced Friday:

First: What’s happening?

The Education department is fixing income-driven repayment plans to ensure borrowers who have made payments for 20 or 25 years will have any remaining debt canceled.

“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” Secretary of Education Miguel Cardona said in a statement.

If you took out Direct Loans, Federal Family Education Loans held by the Education Department or Parent PLUS loans, your loan could be covered, according to CBS News.

Here’s what time periods will be included in the new forgiveness action:

• Any payment made in a month when they were in repayment status, whether the payments were partial or late

• Any period when a borrower spent at least 12 consecutive months in forbearance

• Any month in forbearance for borrowers who spent at least 36 consecutive months in forbearance

• Any month spent in deferment, except for in-school deferment, before 2013

• Any month spent in economic hardship or military deferments on or after January 1, 2013

• Any months in the categories above that occurred prior to a loan consolidation will also be counted toward forgiveness

“Our Administration will continue to fight to make sure Americans can access high-quality postsecondary education without taking on the burden of unmanageable student loan debt,” Vice President Kamala Harris said in a statement.

Second: What do you have to do?

Nothing. You don’t have to do anything to get the relief. The White House said this is automatic and borrowers will be notified starting Friday, July 14. Thirty days after emails are sent, debts will start being discharged.

Among the 804,000 people, that’s an average of $48,507 each.

If you want to opt out of the forgiveness, you should contact your loan servicer. If you need to find out who your loan servicer is, you can visit your Federal Student Aid account dashboard or call the Federal Student Aid Information Center at 1-800-433-3243.

Third: Why now?

This is happening now because the administration is fixing “historical failures” in how these income driven repayment plans were managed.

CNBC reported payments weren’t accounted for that should have moved borrowers closer to paying off their debt.

The Education Department already started discharging loans for borrowers under Public Service Loan Forgiveness.

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