The Biden Administration announced Friday a new student loan forgiveness plan set to erase the debt of certain borrowers enrolled in the Saving on a Valuable Education (SAVE) plan.
The new initiative, which is set to launch in February, will provide debt relief for borrowers who have made 10 years of monthly payments and have an original principal balance of $12,000 or less in loans.
Debt relief will be automatically applied to borrowers’ accounts, meaning they do not have to take any action. Borrowers who have a principal balance greater than $12,000 are also eligible for forgiveness on a longer time frame. Nearly 7 million borrowers are currently enrolled in the SAVE plan.
The action is the latest loan relief measure adopted by the Education Department after the Supreme Court struck down President Joe Biden’s original student loan forgiveness plan last July that would have erased $400 billion in debt. (The Administration is currently pursuing similar relief through the Higher Education Act, though experts say that will also likely run into legal challenges.)
The Department of Education says the initiative will especially help borrowers who are low-income or attended community college. “Beyond being the most affordable student loan repayment plan ever available, the Biden-Harris Administration designed the SAVE Plan to put community college students and other low-balance borrowers on a faster track to debt forgiveness than ever before,” U.S. Secretary of Education Miguel Cardona said in Friday’s press release. “Today’s announcement gives borrowers an even greater reason to check out the SAVE plan and find out if they may qualify for earlier debt relief.”
Who is eligible?
The new student loan forgiveness plan would only affect borrowers who are enrolled in the SAVE program. SAVE officially launched in August 2023 as a replacement of the Revised Pay-As-You-Earn, or REPAYE, a now-defunct income-driven repayment plan.
Forgiveness is based on a borrowers’ original debt, not what they currently owe. Borrowers who originally took out $12,000 or less for either their undergraduate or graduate education and have been paying off those loans for 10 years will see their balance wiped clean. The announcement also says that “for every $1,000 borrowed above $12,000, a borrower can receive forgiveness after an additional year of payments.” That means that borrowers who took out $13,000 in loans would see debt-relief by next year.
Borrowers will be notified about forgiveness beginning in February. The Biden Administration is also implementing an outreach campaign to encourage more borrowers to enroll in the SAVE program. Starting Friday, the Department of Education will be emailing borrowers to inform them that they could see relief from this newest loan-forgiveness plan should they transfer to a SAVE repayment plan.
What is SAVE?
The SAVE plan is one of four income-driven repayment plans that calculate borrowers’ monthly student loan payments based on their salary and family size. Borrowers who make under $15 an hour pay $0 per month towards their student loans; this currently applies to 3.9 million people in the program, according to the Department of Education. Under the current standards, any borrower enrolled in an income-driven repayment plan will see their loan balance automatically forgiven after 20 to 25 years of payments, depending on the type of loan they have.
Additional changes to the SAVE plan are expected to roll out in July 2024 that the Department of Education says will “implement further payment reductions for borrowers.”