In a groundbreaking move, the Biden Administration is set to introduce an additional avenue for debt relief aimed at specific student loan borrowers starting next month. This initiative is part of the SAVE Plan, a novel income-driven repayment program launched by the administration last year.
The program targets individuals who initially borrowed smaller loan amounts, diligently paying off their loans for over a decade without making significant headway. To qualify, applicants must have an initial student loan balance of less than $12,000 and have been repaying it for a decade while being enrolled in SAVE.
Education Secretary Miguel Cardona emphasized the program’s focus on aiding those who attended community college or did not complete their college education, historically the group at the highest risk of loan default.
“If you’re paying it for 10 years, it’s enough,” stated Secretary Cardona in an interview. He emphasized that borrowers who meet the criteria deserve debt release to enable them to move forward and thrive financially.
Department of Education Under Secretary James Kvaal noted that over three-fifths of borrowers with defaulted loans had originally borrowed less than $12,000.
While specific figures regarding the number of qualifying individuals were not provided, approximately 6.9 million people have enrolled in SAVE since its launch, constituting about one-third of current borrowers in the student loan repayment phase.
The SAVE Plan, moving forward, aims to make 85% of future community college borrowers debt-free within a decade, according to the Department of Education.
Despite the positive trajectory, the rollout of the SAVE Plan has encountered challenges, similar to the broader student loan payment restart in the fall. Some applicants experienced prolonged processing times, with 450,000 applications pending for more than 30 days, as reported by the Consumer Finance Protection Bureau in January.
Officials stated that most pending applications have now been processed, addressing the backlog. The Department of Education plans to commence automatic debt discharges in February for eligible individuals already enrolled in SAVE.
President Joe Biden commended the implementation of this critical aspect of the SAVE Plan, emphasizing its significance for community college borrowers, low-income individuals, and those struggling with loan repayment.
Debt relief under the SAVE Plan is not limited to those with initial balances under $12,000. Borrowers who initially took out more significant amounts will see one year added to their repayment plan for every $1,000 borrowed. The administration continues to position the SAVE Plan as the most economical choice, offering a shorter path to debt relief than other income-driven repayment options.
Key benefits of the SAVE Plan include a quicker route to debt relief, subsidized payments to prevent excessive interest accrual, and bills set at $0 for those earning less than minimum wage. Additionally, a reduction in the percentage of income allocated to loan payments, from 10% to 5%, is slated to take effect in July.
Secretary Cardona hailed the SAVE Plan as the country’s first genuine student loan safety net, addressing a long-standing need. Notably, 75% of SAVE enrollees are Pell Grant recipients, further highlighting its impact on low-income college students.