Psst: Joe Biden Has Solved the Student Debt Crisis
This past fall, with student loan payments set to resume after the pandemic pause, dread was setting in. My pre-pandemic monthly payments had been a crippling burden that made saving money impossible; the pause was a lifeline that had allowed me to pursue a graduate degree and open my first-ever savings account. For more than three years, the dark rain cloud that had followed me everywhere had cleared. Now it was back.
Out of options and running up against the deadline, I heard about the Biden administration’s new Saving on a Valuable Education repayment plan, or SAVE, which was announced at the end of August.
Hunched over my laptop, I took a leap of faith, unsure if it would help me—especially because my debt burden had grown by 43 percent and I was earning double the salary I had been before the COVID payment pause. To my relief, I was notified that I’d owe zero dollars a month until the plan automatically renews in September 2024. Then, my payments would cost roughly $227 a month—37 percent less than I’d be paying under the old plan.
After digging deeper into SAVE’s details, I learned that the plan is more than an extra-lenient repayment program—it’s President Joe Biden’s vehicle for delivering billions in forgiveness after the Supreme Court defeated his $430 billion debt cancellation plan this summer.
Under other repayment plans, the average borrower ends up paying more than the original amount they borrowed because interest accumulates. But the average undergraduate borrower who uses SAVE will repay only 60 cents on every dollar they borrowed. For low-income borrowers, the entire balance will be forgiven.
There’s never been a program like it. For millions of Americans, SAVE will be debt cancellation in the form of debt repayment. In other words, the large-scale debt relief activists have spent years fighting for is finally here—it just didn’t arrive in the packaging anyone expected.
SAVE has been dismissed by the hard-line activists who spent years pushing Democrats on student debt. That’s a huge problem. Failing to turn out young voters, who regard student debt as a top issue, would likely deliver the White House to Donald Trump in 2024.
And no one’s talking about it. The rollout of SAVE has been largely ignored by the mainstream press. Worse, it’s been dismissed by the hard-line activists who spent years pushing Democrats on student debt, making this moment possible. The leading debt activist and author Astra Taylor derided SAVE as “just yet another tweak from the Department of Education.”
That’s a huge problem. The political stakes of this attitude from the left are dire. Failing to turn out young voters, who regard student debt as a top issue, would likely deliver the White House to Donald Trump in 2024. Public conversation is still hung up on total debt cancellation—which is going nowhere, thanks to a hostile Supreme Court conservative supermajority—despite the fact that the Biden administration is quite literally delivering tens of billions of dollars in debt forgiveness through other means.
SAVE should be a political coup for Biden, who is struggling to hold on to the young voters who helped him take office three years ago. Instead, it’s been the opposite. It’s time to change the narrative.
To see why this program is so revolutionary, it’s important to get into the nuts and bolts.
SAVE is a type of income-driven repayment plan. IDR plans allow borrowers to pay off their debt in monthly installments that reflect a percentage of their discretionary income, which is the government’s estimate of a borrower’s remaining income after paying for their necessities. These plans have been available since the 1990s alongside other options, such as standard plans, which set a fixed and consistent monthly repayment. But IDR plans have traditionally offered unattractive terms for most borrowers and have been relatively unpopular.
Three of the Education Department’s four legacy IDR plans are still available to borrowers, while Revised Pay as You Earn, or REPAYE, which came out in 2015, has been replaced by SAVE. SAVE offers drastically more generous terms than REPAYE or any of the remaining plans.
First, SAVE changes the definition of discretionary income. Other IDR plans consider any income above 150 percent of the federal poverty line (which varies based on household size) to be discretionary income. But SAVE considers discretionary income anything above 225 percent of the federal poverty line. That means borrowers who make less than $32,805 per year—225 percent of the federal poverty line for a household of one—have no discretionary income by SAVE’s definition and therefore pay nothing.
Second, other IDR plans set monthly payments at 10 percent or more of a borrower’s discretionary income. Starting next summer, SAVE will make it 5 percent for most borrowers. For those like me with loans from both undergraduate and graduate programs, it’s a weighted average between 5 and 10 percent. (For the minority of borrowers with only graduate loans, it’s the full 10 percent.)
Take these two new terms together, and nearly all borrowers will have much smaller monthly payments with SAVE compared to REPAYE. For a borrower with only undergraduate loans with, say, a family of four and a household income of $75,000, it’s the difference between paying $250 and $31 every month.
Third, under old IDR plans, if borrowers hit 20 to 25 years of regular payments without paying off the whole balance, the rest would be forgiven. SAVE offers forgiveness after just 10 years if you borrowed less than $12,000, the position in which many of the most vulnerable borrowers—low-income students who went to community or for-profit colleges and didn’t graduate—are stuck. For each additional $1,000 of debt, one year of repayment is added, capped at 20 years for undergraduate debt holders and 25 years for graduate borrowers. For example, someone with $15,000 in loans would reach forgiveness after 13 years.
Lastly, if a borrower’s monthly payments under other IDR plans did not cover interest, the government would cover half the outstanding interest while the rest would accumulate. Over the past couple of decades, compounding interest has kept some borrowers from even touching their principal, often saddling them with balances larger than what they initially took out. A series of Pew focus groups in 2018 and 2019 found that “borrowers expressed tension between their desire to have lower monthly payments and their frustration at stagnant or rising balances in income-driven plans,” causing many to switch out. But with SAVE, the government pays for all interest not covered by monthly payments. As a result, loan balances never increase.
The upshot is that millions of Americans will see much or all of their loans forgiven.
Of the 5.5 million borrowers who’ve enrolled in SAVE as of early November, 2.9 million saw their monthly payment cut to zero. A Biden administration analysis found that the average amount of debt repaid for every $10,000 borrowed would fall from $10,956 under old IDR plans to $6,121 under SAVE for undergraduate borrowers. The rest will be paid for by the government.
This remaking of REPAYE as SAVE also extends to how the Biden administration has reengineered the program’s back end.
Historically, the administration of IDR plans has been a mess. Past IDR plans required borrowers to recertify every year, and a Brookings Institution study last year found that servicers routinely failed to make borrowers aware of this requirement. As a result, more than half failed to recertify every year, prolonging the life of their loan. A March 2021 report by borrower advocates found that 2 million borrowers on IDR plans had been repaying loans for at least 20 years and were therefore entitled to forgiveness on their remaining balance, yet just 32 individual borrowers had seen their balance forgiven. Neglectful government oversight meant that millions of borrowers were wrongly steered into costly deferments or forbearances by loan servicers.
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” Education Secretary Miguel Cardona said in a written statement last summer. To right this long-standing wrong, his department began an ongoing “account adjustment” that so far has wiped out about $44 billion for more than 900,000 borrowers who have surpassed the 20-year threshold. In all, the Biden team has used existing tools to cancel $132 billion in student debt so far, the most of any president in history.
And SAVE is structured to prevent such a crisis from happening again. The application is simple and the online portal works well, as I discovered when I signed up. Staying enrolled every year is no longer a technical and bureaucratic nightmare: The plan allows the Education Department to liaise with the IRS and pull financial information directly from a borrower’s taxes. This means the plan can automatically renew each year without input from the borrower, thwarting catastrophes caused by a missed email or a negligent loan servicer.
It’s hard to exaggerate what a potential game changer SAVE is for the 44 million Americans who now collectively hold $1.7 trillion in student debt, roughly 7 times the total 20 years ago. The average borrower today holds $37,717 in student loans. For millions of Americans, debt stands in the way of starting a family, buying a home, and saving for retirement.
It was certainly a burden for me. When I received my undergraduate degree in 2019—not from a fancy elite college, which was beyond the means of my middle-class family, but from a fine New York state school, SUNY Purchase—I was $35,000 in debt and looking for a career in journalism (yeah, I know). That winter, after months of effort, I landed a news broadcast job in New York City with an annual salary that was the same amount as my debt: $35,000. I could finally afford an apartment—albeit a tiny one—after months of couch surfing.
For borrowers who tasted financial freedom during the pandemic and invested their hope in the cancellation plan, SAVE is more than a consolation prize. The plan is a more legally secure vehicle for keeping payments manageable while delivering billions in debt forgiveness.
A week later, the government came knocking: It was time to start making my monthly $198.40 payments. The financial strain was enormous on such a small salary. But when the pandemic hit in March 2020, the fear induced by the spreading disease was lessened, for me at least, when the federal government declared a pause to student loan repayments.
I took advantage of that respite to enroll in a master’s degree program in investigative reporting from Columbia University’s Graduate School of Journalism, with the hopes that it would embed me in bigger, better career networks. To make ends meet, I skirted school rules preventing students from freelancing and even donated my eggs for $10,000. With the help of several scholarships, I graduated with only $15,000 in additional debt (the list price of a Columbia journalism master’s degree is $126,691). The gamble paid off: I got a decent-paying full-time job at a real estate trade publication and eventually landed at The New Republic, earning double what I had been making four years earlier. Still, I knew that the looming prospect of having to resume payment on my student loans, which now totaled $50,000, would mean a return to ramen noodles for dinner.
Like most young debt-burdened college graduates, I was a fan of the “free college” idea that Bernie Sanders had launched in 2016, and was rooting for the Biden administration’s debt forgiveness plan, which the president had campaigned on in 2020. Naturally, I was crushed when the Supreme Court struck that plan down in June 2023, declaring (dubiously but not surprisingly) that it would usurp Congress’s authority. The backup forgiveness plan that Biden announced just after the Court decision would rely on different legal powers but is still likely to run afoul of the Court’s reasoning in the first case and also be blocked, according to experts.
By contrast, the SAVE program, which the administration announced soon after the June decision, is much less vulnerable to judicial chicanery than conventional forgiveness. The Education Department has run IDR programs like this for decades. As Ryan Cooper wrote in The American Prospect, the Supreme Court would likely be “more hesitant to strike down a program with such a long precedent.” A recent attempt by Senate Republicans to block the plan came up short. The plan has faced no challenges in the courts.
SAVE is also just. It requires working professionals like me who can afford to pay back their loans to do so, but on terms that our budgets can handle and that allow us to move ahead in life.
Predictably, this has sent conservative media into histrionics. “Unlike Biden’s other student debt cancellation proposals, there’s very little chance the Supreme Court will block it,” an apoplectic Fox News column observed. The Wall Street Journal fretted that SAVE would “make forgiveness a permanent part of the student-loan system.”
That’s correct—but it’s a feature, not a bug. “SAVE is President Biden living up to Candidate Biden,” Spencer Dixon, senior policy adviser with the nonprofit advocacy group Student Debt Crisis Center, told me.
Using SAVE should be a no-brainer for borrowers. And yet few have taken advantage of the opportunity so far. Of the 5.5 million borrowers who have signed up, most are automatic rollovers from REPAYE. It’s likely that many more of the millions of borrowers who are eligible to apply for SAVE haven’t yet heard of the program.
Part of the reason is that the mainstream press, which has obsessively covered the back-and-forth over total debt forgiveness, has barely written about the SAVE program. But the press’s failure is tied to the fact that progressive groups that advocate for student debt relief have not only failed to promote SAVE but are openly disparaging it—typically by equating it with the abuses and mismanagement of earlier IDR programs. “Anyone who tries to sell you on IDR (Income Driven Repayment) is probably not your friend,” the Debt Collective posted on X (formerly Twitter) after the announcement of SAVE. “It has failed over and over and over again.”
Activists owe it to themselves—and the public—to take another look at SAVE. It is a far cry from the broken federal program that preceded it.
For borrowers who tasted financial freedom during the pandemic and invested their hope in the cancellation plan, SAVE is more than a consolation prize. The plan is a more legally secure vehicle for keeping payments manageable while delivering billions in debt forgiveness. For the nearly 3 million low-income Americans who have already seen their monthly payments slashed to zero, the program is working just like conventional forgiveness. It has the benefit, too, of making “forgiveness a permanent part of the student-loan system,” as the Journal put it, instead of canceling debt once without putting an ongoing forgiveness program in place for future borrowers. SAVE is also just. It requires working professionals like me who can afford to pay back their loans to do so, but on terms that our budgets can handle and that allow us to move ahead in life.
Activists who spent years fighting for debt relief are maintaining an uncompromising purity standard now that it’s arrived in a form different than the one they envisioned. In so doing, they are not only depriving millions of stressed student debt holders whom they claim to represent of the information those debtors desperately need. They are also increasing the chances that Trump will win in 2024.
The post Psst: Joe Biden Has Solved the Student Debt Crisis appeared first on Washington Monthly.