Why millions of student loan borrowers will have lower payments starting in July | CNN Politics (2024)

Why millions of student loan borrowers will have lower payments starting in July | CNN Politics (1)

People walk through the gate on Harvard Yard at the Harvard University campus on June 29, 2023, in Cambridge, Massachusetts.

Washington CNN

Millions of borrowers will see their monthly student loan payments reduced starting in July, thanks to one of the Biden administration’s biggest changes to the federal student loan system to date.

Last year, following the Supreme Court decision that knocked down President Joe Biden’s signature student loan forgiveness program before it took effect, his administration rolled out a new repayment plan known as SAVE (Saving on a Valuable Education) that will be fully phased in this summer.

For most borrowers, the SAVE plan requires a lower monthly payment than other federal student loan repayment plans, and it cancels student debt for some borrowers after they make as few as 10 years of payments. More than 8 million people have enrolled in the SAVE plan to date.

Most of the benefits offered by the SAVE plan are already in place, but one significant provision will take effect in July. The change could cut payments in half for some borrowers.

How payments will be reduced

Under the SAVE plan, monthly payments are calculated based on a borrower’s income and family size, regardless of how much student debt they have.

Starting in July, monthly payments on loans borrowed for undergraduate school will be reduced from 10% to 5% of discretionary income.

Borrowers who have loans from both undergraduate andgraduate school will pay a weighted average of between 5% and 10% of their income based upon the original principal balances of their loans.

For example, a borrower with $20,000 from his or her undergraduate education and $60,000 from graduate school will pay 8.75% of his or her income, according to afact sheetprovided by the Biden administration.

The payment recalculation will happen automatically and does not require any action from borrowers enrolled in SAVE.

A delay for some borrowers

Even though the Department of Education said lower payment amounts would go into effect in July, the agency is behind and has not finished recalculating borrowers’ lower payment amounts.

But affected borrowers won’t be required to continue to make the bigger monthly payments. If a borrower’s payment is not recalculated by July, he or she will be placed in a forbearance, during which no payment will be due and no interest will accrue. The month will still count toward student loan forgiveness.

“As the department finalizes preparations for the full universe of borrowers eligible for lower monthly payments, some borrowers may be placed in a brief processing forbearance to ensure they can access the full benefits of the SAVE Plan and that their new payment amounts are accurate,” the Department of Education said in a statement.

The delay was first reported by The New York Times.

How the SAVE plan works

Before the SAVE plan launched last year, the federal government already offered several income-driven repayment plans, which tie monthly payments to a borrower’s income and family size. But SAVE offers the most generous terms, especially for low-income borrowers.

There are two main ways the SAVE plan can lower monthly payments for enrolled borrowers. In addition to cutting the payment from 10% to as low as 5% of discretionary income, SAVE also changes the way discretionary income is calculated. It shields a bigger portion of a borrower’s income, resulting in lower payments when compared with other income-driven plans. Payments can be as low as $0, and more than half of borrowers currently enrolled in SAVE are not required to make a monthly payment.

The SAVE plan also prevents balances from ballooning due to interest when a borrower has a small monthly payment. If enrolled in SAVE, unpaid interest does not accrue if a borrower makes a fully monthly payment. For example: If $50 in interest accumulates each month and a borrower’s full required payment is just $30, the remaining $20 would be waived.

Borrowers enrolled in SAVE may also be eligible for student debt relief in a shorter amount of time than under other income-driven plans. Those who borrowed $12,000 or less will see their debt forgiven after paying for just 10 years under SAVE. Every additional $1,000 borrowed above that amount would add one year of monthly payments to the required time a borrower must pay. Under other repayment plans, borrowers must make at least 20 years of payments before receiving debt forgiveness.

Initially, debt relief delivered under the SAVE plan was scheduled to begin this summer. But the Biden administration began canceling some eligible borrowers’ debt early, in February. So far, $5.5 billion has been canceled for 414,000 people enrolled in the plan.

Legal challenges

Two groups of Republican-led states have sued to overturn the SAVE plan, arguing that the Biden administration is overstepping its legal authority.

Some of the states, including Missouri, are amongthe same plaintiffs that sued the Biden administration two years ago over its sweeping one-time student loan forgiveness program.

“Yet again, the President is unilaterally trying to impose an extraordinarily expensive and controversial policy that he could not get through Congress,” reads thelawsuitfiled in April by attorneys general in Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma.

Theestimated cost of the SAVE plan varies, depending on how many borrowers end up enrolling, ranging from$138 billionto$475 billionover 10 years, according to different studies.

Why millions of student loan borrowers will have lower payments starting in July | CNN Politics (2024)

FAQs

Why millions of student loan borrowers will have lower payments starting in July | CNN Politics? ›

A federal appeals court will allow the Department of Education to proceed with lowering millions of student loan borrowers' monthly payments in July as the Biden administration faces two legal battles over the repayment plan known as SAVE (Saving on a Valuable Education), which launched last year.

What is the save plan for July 2024? ›

The SAVE Plan gives borrowers who originally borrowed $12,000 or less forgiveness after as few as 10 years. More elements of SAVE will go into effect in summer 2024 and will lower payments even more for borrowers with undergraduate loans.

Will student loan payments be lower? ›

How payments will be reduced. Under the SAVE plan, monthly payments are calculated based on a borrower's income and family size, regardless of how much student debt they have. Starting in July, monthly payments on loans borrowed for undergraduate school will be reduced from 10% to 5% of discretionary income.

Why should the United States federal government forgive all federal student loan debt? ›

Student debt exacerbates existing racial and socioeconomic disparities. Wealthier students carry less debt, while Black students face higher debt burdens. Across-the-board forgiveness could help close these gaps and promote equity. Proponents also argue forgiving student loans would help boost social mobility.

What is happening with student loan forgiveness? ›

Borrowers who have been in repayment for more than 20 years

Biden's new plan aims to automatically cancel the undergraduate debt of anyone who has been repaying their loans for 20 years (since July 1, 2005) and forgive the graduate-school debt of anyone who has been in repayment for 25 years (since July 1, 2000).

What are the save benefits for July 2024? ›

Starting in July 2024, payments for borrowers with only undergraduate student loans will be cut in half. Those monthly payment amounts are currently calculated to be 10% of your discretionary income, but in July 2024 that number will drop to only 5% of your discretionary income.

Who qualifies for the save plan? ›

Who is eligible for Save? People with federal loans made directly by the government for their own education are eligible for the plan, as well as those who consolidate their loans from the defunct Federal Family Education Loan Program. However, people with Parent Plus loans are shut out of the new plan.

Will my student loan payments go down in July? ›

Millions of borrowers will see their monthly student loan payments reduced starting in July, thanks to one of the Biden administration's biggest changes to the federal student loan system to date.

Why is my student loan not going down? ›

If your monthly payment does not cover the accrued interest, your loan balance will go up, even though you're making payments. Unpaid interest will also capitalize each year until your total balance is 10% higher than the original balance.

What can Biden do about student loans? ›

The proposals would permit the following types of waivers:
  • Waiving accrued and capitalized interest for millions of borrowers;
  • Automatically discharging debt for borrowers not enrolled in but otherwise eligible for loan forgiveness under the SAVE Plan, closed school discharge, or other forgiveness programs;
May 21, 2024

Why do people not want student loans forgiven? ›

Student loan forgiveness is an abuse of the loan system. People must be held responsible for their personal economic choices. A 2020 survey found 46% of Americans believe student loan forgiveness is unfair to those who have paid off their loans…

How much will student loan forgiveness cost taxpayers? ›

Including the Biden Administration's new student debt cancellation plan, we estimate all recent student debt cancellation policies will cost a combined $870 billion to $1.4 trillion. That's more than all federal spending on higher education over the nation's entire history.

Would student loan forgiveness hurt or help the American economy? ›

Both student debt relief and SAVE will enhance the economic status of millions of Americans with student debt: enable them to allocate more funds towards basic necessities, take career risks, start businesses, and purchase homes with the understanding that they will never have to pay more than they can afford towards ...

What would happen if all student loans were forgiven? ›

Canceling student loan debt may add $109 billion on average to the annual GDP for the next 6 years. Canceling student loan debt may add up to 1.5 million new jobs. Student loan debt cancelation may lift up to 5.2 million American households out of poverty.

Who pays for the student loan forgiveness? ›

But the money isn't free. Sure, it's government money, which doesn't seem completely real, but by canceling debt payments the government forgoes future revenue, which adds to annual deficits and the total national debt. Future taxpayers will essentially pay the bill.

Will student loans take my taxes in 2024? ›

Important note: As part of the Fresh Start Program, borrowers with eligible defaulted loans are receiving certain relief measures, including tax refunds (and child tax credits) not being withheld. This relief will continue through at least September 2024.

What are the downsides of the save repayment plan? ›

Cons
  • If your income changes, your payments will also change: The SAVE plan is an income-driven repayment plan. ...
  • Borrowers with mid-level balances won't benefit as much: Your monthly payment on the SAVE plan is income-driven, whereas your monthly payment on the standard repayment plan is balance-driven.

How much will I pay under the save plan? ›

SAVE (Starting July 1, 2024): Payments are calculated at between 5% and 10% of Discretionary Income, where Discretionary Income = AGI minus 225% of FPL. The % of Discretionary Income will be 5% if you have all undergraduate school loans, 10% if you have all graduate school loans or a weighted average if you have both.

Can I still enroll in the save plan? ›

Borrowers can still enroll in SAVE or other income-driven repayment (IDR) plans and/or consolidate loans. The cost-savings provisions of the SAVE Plan remain in effect. Borrowers who sign up for the SAVE Plan are still eligible for lower monthly payments. If you are already on the SAVE Plan, no action is needed.

Do I have to consolidate my loans for a save plan? ›

If you have a mix of Direct Loans and non-direct like FFEL/Perkins, you MUST consolidate your FFEL/Perkins to access SAVE and forgiveness programs.

Top Articles
Latest Posts
Article information

Author: Geoffrey Lueilwitz

Last Updated:

Views: 6356

Rating: 5 / 5 (60 voted)

Reviews: 91% of readers found this page helpful

Author information

Name: Geoffrey Lueilwitz

Birthday: 1997-03-23

Address: 74183 Thomas Course, Port Micheal, OK 55446-1529

Phone: +13408645881558

Job: Global Representative

Hobby: Sailing, Vehicle restoration, Rowing, Ghost hunting, Scrapbooking, Rugby, Board sports

Introduction: My name is Geoffrey Lueilwitz, I am a zealous, encouraging, sparkling, enchanting, graceful, faithful, nice person who loves writing and wants to share my knowledge and understanding with you.