What Biden's SAVE plan means for student loan borrowers

Student loan borrowers could save thousands of dollars over the life of their loans due to changes to income driven repayment (IDR) plans set to go into effect this fall. 

The changes are possible despite a blow dealt to debt forgiveness by the Supreme Court late last month.

The Biden administration introduced the Saving on Valuable Education (SAVE) plan to transform the old IDR system into what the Department of Education called “the most generous” student repayment option ever given to borrowers.  

Here’s what borrowers should know about the new SAVE plan before payments resume this fall after a three-year hiatus. 

What is the SAVE plan? 

The plan, announced earlier this year, makes multiple significant changes that will lower the monthly payment for many borrowers, including some who could see their bill go to $0 a month by enrolling in the program.  

Anyone with Direct Loans can enroll in the plan, replacing the old Revised Pay-as-You-Earn (REPAYE) student loan system. Those who are already in the REPAYE program will be automatically switched to the SAVE program. 

One of the biggest changes in the SAVE plan is the income protected from payments will rise from 150 percent above the federal poverty guidelines to 225 percent. 

This means a single person earning less than $32,805 a year will have monthly payments of $0. The same would happen to families of four that make less than $67,500. 

The administration touts the new plan will save a single borrower $1,080 a year and families of four $2,244 a year. 

And the plan also includes a provision to automatically enroll borrowers who become delinquent on payments. 

“The borrowers who are most vulnerable to default, if they're able to implement automatic enrollment in this plan, effectively, those borrowers when they if they fall behind on their payments, once they're 75 days delinquent, they'll be enrolled in this plan,” Jason Cohn, a research analyst at the Urban Institute’s Center on Education Data and Policy, told The Hill. 

What does the save plan mean for student loans?

The department will stop monthly interest that is not covered by the SAVE plan so borrowers won’t see their loans grow from unpaid interest. 

Prior to the administration’s changes, if a borrower failed to make a payment that covered their interest, it was then added to the loan’s balance.    

“With the SAVE plan, the new regulations specify that any accrued but unpaid interest relative to the calculated payment gets waived, disappears, the government pays for it,” student loan expert Mark Kantrowitz told The Hill. 

How does the SAVE plan student loans program work?

While President Biden has touted many benefits to the new SAVE plan, there are some mixed feelings on the program.  

The Education Department estimates the plan will bring down payments by 40 percent. Yet for Black, Hispanic, American Indian and Alaska Native borrowers, their lifetime payments per dollar will go down by 50 percent.  

“This is something that we believe will help millions of people,” said Cody Hounanian, executive director of Student Debt Crisis Center. “I think it's important to recognize that the SAVE program is going to make a positive difference in people's lives.” 

But others argue that in the absence of further protections like bankruptcy, some of these IDRs distract from the larger problem. 

"I really don't even look at these IDRs on their advertising points anymore because in the absence of the leverage of bankruptcy protections, the Department of Education behaves in the worst of bad faith with all of these IDRs, and they truly have no intentions or desires of actually canceling anyone’s loans," Alan Collinge, founder of StudentLoanJustice.org, told The Hill. 

Certain hurdles, such as undue hardship, have been uniquely applied to student loans to prevent debt discharge, he added. 

After Biden’s student debt relief through the Higher Education Relief Opportunities for Students Act failed at the Supreme Court in June, he announced a new plan to get borrowers loan forgiveness through the Higher Education Act.  

The administration proposed a rule to begin the road to another student debt relief plan, but more details about how much relief and who gets it won’t be available for months. From there, it is likely to be challenged. 

The lack of student debt relief as the SAVE program goes into place is a real concern for advocates, who say Biden has the power to make this a smoother transition for borrowers by giving loan forgiveness before payments resume.  

“We know, turning the student loan system back on, introducing folks to a new repayment program, new student loan servicers, all of this is colliding at the same time, and it is going to make it incredibly difficult for borrowers to manage their student loans moving forward,” Hounanian said.  

What qualifies for the SAVE plan?

The plan will go fully into effect by July 1, 2024, but the administration will implement three parts of the program before payments resume. 

These include raising the federal poverty guidelines to protect income from repayments up to 225 percent; not charging borrowers for interest not covered by the plan; and allowing married borrowers who do their taxes separately to put their spouse's income in the payment calculation for the plan. 

Still, the plan is expected to cost billions of dollars, which Republicans have emphasized since new plan was announced.  

“The administration’s Income-Driven Repayment rule is nothing more than a backdoor attempt to provide free college by executive fiat,” Education and the Workforce Committee Chairwoman Virginia Foxx (R-N.C.) said at the time. 

Estimates vary widely, but the University of Pennsylvania’s Wharton School estimates the administration’s SAVE plan will cost about $475 billion over 10 years. 

The analysis suggests 53 percent of the current loan volume will move to SAVE after the plan goes live July 2024, which suggests about $869 billion will be “subject to enhanced subsidies under SAVE.”