NEW STUDENT LOAN REPAYMENT PLAN, plus UPDATES (at end of this article)


“SAVE” – New Student Loan Repayment Plan (8/23)

August, 2023  To the relief of student loan-holders, the White House has launched a new repayment plan. SAVE – Saving on a Valuable Education – calculates payments based on income and family size. It also allows borrowers who consistently make their monthly payments to have debt forgiven more quickly.

Those whose applications are accepted would see their monthly payments cut in half for undergrad loans, falling from 10% to 5% of disposable income. An earlier plan to cancel up to $20K in federal loans got shot down by the Supreme Court. The administration says SAVE’s the most affordable student loan plan ever rolled out and could affect 20M+ student borrowers.

Who could benefit from the Biden administration’s latest plan to relieve student debt –

The following is a clip from the 8/22/23 THE WHITE HOUSE FACT SHEET

The Biden-Harris Administration Launches the SAVE Plan, the Most Affordable Student Loan Repayment Plan Ever to Lower Monthly Payments for Millions of Borrowers. The SAVE plan is an income-driven repayment (IDR) plan that calculates payments based on a borrower’s income and family size – not their loan balance – and forgives remaining balances after a certain number of years. The SAVE plan will cut many borrowers’ monthly payments to zero, will save other borrowers around $1,000 per year, will prevent balances from growing because of unpaid interest, and will get more borrowers closer to forgiveness faster. The SAVE plan builds on the actions the Biden-Harris Administration has already taken to support students and borrowers, including cancelling more than $116 billion in student loan debt for 3.4 million Americans.

Specifically, the SAVE plan will

  • Put payments on undergraduate loans in half. Borrowers with undergraduate loans will have their payments reduced from 10% to 5% of their discretionary income. Those who have undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income based upon the original principal balances of their loans.
  • Bring many borrowers’ loan payments to $0 per month. A borrower’s monthly payment amount is based on their discretionary income—defined under the SAVE plan as the difference between their adjusted gross income (AGI) and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for their family size. This means a single borrower who makes about $15 an hour will not have to make any monthly payments. Borrowers earning above that amount would save around $1,000 a year on their payments compared to other IDR plans. The Department of Education estimates that more than 1 million additional low-income borrowers will qualify for a $0 payment. This will allow them to focus on food, rent, and other basic needs instead of loan payments.
  • Ensure that borrowers never see their balance grow as long as they keep up with their required payments. The Department of Education will stop charging any monthly interest not covered by the borrower’s payment on the SAVE plan. As a result, borrowers who pay what they owe on this plan will no longer see their loans grow due to unpaid interest. For example, if a borrower has $50 in interest that accumulates each month and their payment is $30 per month under the new SAVE plan, the remaining $20 would not be charged as long as they make their $30 monthly payment. The Department of Education estimates that 70 percent of borrowers who were on an IDR plan before the payment pause would stand to benefit from this change. Coinciding with the launch of the SAVE plan, the White House Council of Economic Advisers released a new blog post that models how the income benefit of the SAVE plan could prevent a lower-income borrowers’ balance from increasing by nearly 78% over a 20-year repayment period.
  • Provide early forgiveness for low-balance borrowers. IDR plans require all borrowers, even those who only attended school for a single term, to repay their loans for at least 20 or 25 years before receiving forgiveness of any outstanding balance. Under the SAVE plan, borrowers whose original principal balances were $12,000 or less will receive forgiveness after 120 payments (the equivalent of 10 years in repayment). For each additional $1,000 borrowed above that level, the plan adds an additional 12 payments (equivalent of 1 year of payments) for up to a maximum of 20 or 25 years. For example, if a borrower’s original principal balance is $14,000, they will see forgiveness after 12 years. Payments made previously (before 2024) and those made going forward will count toward these maximum forgiveness timeframes.

The benefits of the SAVE plan will be particularly critical for low- and middle-income borrowers, community college students, and borrowers who work in public service. Overall, the Department of Education estimates that the plan will have the following effects for future cohorts of borrowers compared to the IDR plan, called the Revised Pay-As-You-Earn (REPAYE) plan:

  • Borrowers will see their total payments per dollar borrowed fall by 40%. Borrowers with the lowest projected lifetime earnings will see payments per dollar borrowed fall by 83%, while those in the top would only see a 5% reduction.
  • A typical graduate of a four-year public university will save nearly $2,000 a year.
  • A first-year teacher with a bachelor’s degree will see a two-third reduction in total payments, saving more than $17,000, while pursuing Public Service Loan Forgiveness.
  • 85% of community college borrowers will be debt-free within 10 years because of the early forgiveness for low-balance borrowers provision of the plan.
  • On average, Black, Hispanic, American Indian and Alaska Native borrowers will see their total lifetime payments per dollar borrowed cut in half.

Diane’s Musings

new student with 'hire me' sign on side of road
– Diane L. Drain

Student loan debt affects everyone, no matter their age. Ninety percent of student loans are federal monies, which taxpayers money. Over the years of what some see as “free money”, student loans have been abused and misused by almost everyone involved. Not just the borrowers, but also the colleges and government assistance programs. The colleges see student loans as a huge money maker. Many colleges forget their obligation to provide a quality education for the money they are paid. Some borrowers see the money as “free” because it is so easy to obtain. They don’t realize it is a contract with the lender (funded by you and me, the taxpayer) that must be repaid.

I agree that everyone should have a right to better their lives through education. Whether that education is free (as in some countries), or paid by the student is dictated by the policy of that country. Student loans are be not bad as such, but there must be tighter rules on the lending practices. The other side of that coin, the borrowers must be committed to repaying the taxpayers who loaned the funds.

I am not against forgiving loans that have been paid on for decades (this current policy is 20-25 years). That is enough time for the borrowers to suffer. But this policy ignores the other player – that is the college that lent the taxpayer funds. What is being done to require the colleges qualify the borrowers before giving them taxpayer money? If that is not addressed, then this insanity will continue.

The bottom line – everyone involved in the student loan business (borrowers and lenders) must recognize their obligation to the taxpayers. If the loans are forgiven, then the taxpayers lose. If the colleges continue to be rewarded with high profits and no accountability, the taxpayers lose. If the borrowers continue to be rewarded with the confirmation that it was “free” money, the taxpayers lose. This cycle cannot continue.

1367 words|7 min read|Categories: Finances, Student Loans|By |Published On: September 2nd, 2023|Last Updated: May 9th, 2024|

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Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.

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