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Student loan borrowers are bracing for the resumption of monthly payments Oct. 1. A new program rolled out by the Biden administration may help.
The Saving on a Valuable Education plan — commonly known as SAVE — promises a lower monthly bill and a shorter path to loan forgiveness.
"What we’ve heard from folks across the country is those college bills are too expensive, so what we’ve rolled out is a program that only asks you to pay what you can afford," U.S. Secretary of Education Miguel Cardona said in a brief interview with the Milwaukee Journal Sentinel, adding, "My message to borrowers wondering about it is: Apply. It takes 10 minutes. We’re trying to make it simple."
Here's what to know:
Who is eligible? Who isn't?
Those with federal undergraduate or graduate loans should apply.
Parents who borrowed money to pay for their children's education through a Parent PLUS loan cannot enroll in SAVE.
How does it work?
The plan bases monthly payments on income and family size and is readjusted every year. If you sign off on the Education Department automatically accessing your latest tax return from the Internal Revenue Service, you won't have to manually recertify your income every year.
Borrowers with undergraduate student debt pay 5% of their discretionary income, down from 10% or 15% in other plans.
For those with graduate debt, the cap is set at 10%. Borrowers with a mix of undergraduate and graduate debt will have payments weighted somewhere between the two.
What is discretionary income?
Income left over after paying your basic needs, such as rent and food, is discretionary.
The SAVE plan tweaks the formula to increase the amount of income protected from repayment to 225% of the federal poverty guidelines, up from 150%.
For a single borrower making less than $32,000 annually, their monthly payment will be $0, Cardona said. For others, payments will be significantly cut, eventually by as much as half.
How does loan forgiveness work?
Under the plan, anyone who borrowed $12,000 or less for undergrad or graduate school would receive loan forgiveness after making 10 years’ worth of payments, instead of the traditional 20 or 25 years’ worth under other income-based repayment plans.
Every additional $1,000 borrowed above $12,000 would add one year of monthly payments to the time a borrower must pay before their debt is forgiven.
Payments made before 2024 will count toward the maximum forgiveness timeframes.
What else should I know about SAVE?
One of the most attractive features of the plan is that the government will waive any interest accrual that exceeds a borrower’s monthly payment.
"We’ve heard from people all over the country that the interest accrual is what’s really burying them in debt," Cardona said.
How do I apply?
A loan simulator at StudentAid.gov can help you determine which repayment plan fits your circumstances. You can see what your monthly payment amount will be before signing up.
How soon will the SAVE plan take effect?
It depends on when you apply, but processing the application will take a couple weeks.
Student loan servicers will place borrowers in forbearance if they need more time to process their applications. Applicants can check the status of their application through StudentAid.gov.
Some of the plan's features — such as cutting undergraduate loan payments from 10% to 5% of discretionary income — won't take effect immediately, so borrowers won’t receive the full benefits of SAVE until next summer.
Is there a chance the SAVE program could be struck down?
Cardona said he has authority to implement the program, and SAVE doesn't require congressional action.
Republicans, however, are trying to stop the SAVE plan. They said it shifts the burden from those who chose to take out loans to those who didn't go to college, paid their own way or already paid off their loan.
A budget model from the University of Pennsylvania estimates that the SAVE plan will cost as much as $558 billion over a 10-year period.
Congress can block new rules issued by federal agencies with a simply majority from the House and Senate. The president can veto the Republicans' resolution.
"We’re committed," Cardona said. "We know that we’re going to be challenged at every corner, but that doesn’t stop us from fighting for the students we serve."
Anything else I should know ?
The National Association of Student Financial Aid Administrators offers a few tips to keep in mind as you prepare for the return of loan payments:
Never pay for help. Your student loan servicer will provide you with free assistance. There are free public resources available through the Department of Education and federal student loan servicers to help borrowers find the right repayment plan, consolidate their loans or explore deferment or forbearance options.
Know your student loan servicer. If you don’t know who your servicer is, log onto StudentAid.gov and visit the “My Loan Servicers” section of your dashboard.
Be wary of urgent communications. Scammers attempt to extract personal information by creating a false sense of urgency. Federal student loan relief programs, including income-driven repayment plans, are based on eligibility requirements, not deadlines.
This article originally appeared on Milwaukee Journal Sentinel: Wisconsin student loan borrowers can enroll in Biden's SAVE plan