Everything student-loan borrowers need to know about what will happen when payments restart this fall without broad debt relief
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- Biden announced a new plan to transition borrowers back into repayment after his broad debt relief was struck down.
- The plan includes a 12-month "on-ramp" period and a new income-driven repayment plan.
- Here's everything borrowers need to know before payments resume in October.
Student-loan borrowers are not getting broad debt cancellation anytime soon — and they still have to resume payments in just a few months.
Last week, the Supreme Court struck down President Joe Biden's plan to cancel up to $20,000 in student debt for federal borrowers. By a 6-3 ruling, the high court ruled that the president overreached his authority by using the HEROES Act of 2003 to enact the debt relief, which allows the Education Secretary to waive or modify student-loan balances in connection with a national emergency.
But Biden is trying again. He announced just hours after the high court's decision that Education Secretary Miguel Cardona has started the process of using the Higher Education Act of 1965, which allows the secretary to waive or compromise student loans without the reliance on a national emergency.
That process could take a lot longer than Biden's first debt relief proposal, meaning borrowers will have to resume payments in October without any reduction to their balances. But Cardona announced a plan to ease that process, as well.
"We're creating an on-ramp for repayment for up to one year for those who need it," Cardona said during a Friday press briefing. "This means although interest will accrue starting September 1st and payments are due starting in October, we'll help borrowers who are struggling to make payments avoid harsh financial consequences, such as delinquencies and wage garnishments. Borrowers who can make payments should."
Along with the on-ramp period, Cardona also said his department has finalized a new income-driven repayment plan for borrowers. Here's everything borrowers need to know before they get hit with a student-loan bill this fall.
An on-ramp period for borrowers who miss payments in the first 12 months
According to an Education Department fact sheet, the department will implement a 12-month "on-ramp" period running from October 1, 2023 to September 30, 2024 to ensure "financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies."
As Cardona noted, interest will still accrue on borrowers balances during this time so he recommends borrowers who can make payments on their loans should do so. Additionally, any missed payments will not count toward borrowers' loan forgiveness progress under Public Service Loan Forgiveness or any of the income-driven repayment plans.
A new income-driven repayment plan
Along with the on-ramp period, the department has finalized its new income-driven repayment — called the Saving on a Valuable Education, or SAVE plan — which it says is "the most affordable repayment plan in history."
Here are the elements of the new plan that will go into effect this summer:
- The plan increases the income exemption from 150% above the poverty line to 225%, meaning that borrowers earning $32,800 or less or a family of four earning $67,500 or less will not owe student-loan payments
- The plan eliminates remaining interest on student-loan balances if a borrower makes their monthly payments, meaning their balance won't grow due to unpaid interest
- And the plan does not require a spouse to cosign the application.
How do I apply for the SAVE plan?
If a borrower is already enrolled in the REPAYE plan — an existing income-driven repayment plan — they will automatically be put on the SAVE plan when it becomes available. For borrowers who are not already enrolled, they can apply for an income-driven repayment plan at studentaid.gov and select the REPAYE Plan, which will automatically enroll them in the SAVE plan.
The application for SAVE will become available later this summer, and borrowers will be notified once it is up.
How do I know if I'm already on the REPAYE plan?
If a borrower is enrolled in an income-driven repayment plan, they can go to studentaid.gov and select the "My Aid" page, which will list their repayment plan. If the website says the borrower is on REPAYE, they do not need to take any additional action to enroll in SAVE. If the borrower is not on a REPAYE plan, they will need to switch to that plan in order to receive the benefits of SAVE.
What SAVE Plan benefits are coming next year?
In July 2024, the department plans to implement the following benefits:
- Payments on undergraduate student loans will be reduced from 10% to 5% of borrowers' discretionary income
- Borrowers with original balances of $12,000 or less will receive loan forgiveness on their remaining balances after ten years of payments
- Borrowers will automatically receive credit toward forgiveness for any periods in deferment or forbearance
- And borrowers who are 75 days late on payments will automatically be enrolled in an income-driven repayment plan if they agreed to allow the department to access their tax information.
When borrowers will find out how much they owe in October
Borrowers will be receive a bill either in September or October, at least 21 days before the payment due date, with their payment amount and when it is due. Borrowers who have left school within the last six months have an automatic grace period, so their first bill might be delayed.
Borrowers who have loans currently in default can take part in the Fresh Start initiative, which will return their loans to good standing before payments resume.