Saving on a Valuable Education (SAVE), a new income-driven repayment plan announced by the Biden-Harris administration on July 14, will forgive nearly 4,000 student loans across Utah.
Biden’s SAVE plan is designed to lower monthly payments on student loans relative to the borrower’s income. It will replace the federal government’s previous income-driven repayment (IDR) plan, Revised Pay As You Earn. According to the Department of Education, SAVE “[cuts] payments on undergraduate loans in half compared to other IDR plans.”
The SAVE plan includes several new benefits for borrowers, some of which will go into effect this summer. Additional changes to the plan will take effect next summer.
Changes taking effect this summer
According to Federal Student Aid, a new integration, coordinated with the IRS, will ease the application and recertification processes for repayment. The new interface will allow borrowers to access financial information without having to manually provide income or family size information.
Beginning now, when borrowers apply for or recertify their IDR plan, they can authorize the secure disclosure of tax information, allowing for automatic access to their latest IRS tax return.
If borrowers choose to authorize the secure disclosure of their tax information, both the Department of Education and loan servicer will automatically recertify the borrower’s enrollment in IDR and adjust their monthly payment amount once every year. Borrowers will also be notified of any changes to their payments and can still manually recertify their plan at any time.
The Federal Student Aid website explains that, starting in 2024, automatic recertification will be available for borrowers enrolled in IDR plans. But if a borrower applies for an IDR electronically in August 2023 or later and authorizes the secure disclosure of their tax information, their repayment plan will be automatically recertified the next time it’s due.
Beginning July 1, unpaid interest on loans will not be capitalized (meaning no addition of unpaid interest to the outstanding principal balance of a loan) when borrowers leave any IDR plan, except for the income-based repayment plan, which requires capitalization by statute.
The last change scheduled to take effect this summer is a redesigned application. The new application will allow claimants to track their progress on a Federal Student Aid account and reduces IDR enrollment time to 10 minutes or less.
Changes taking effect next summer
Starting July 2024, payments on student loans will see reductions from 10% to 5% of borrower income for those above 225% of the federal poverty line (roughly $32,800 for a single borrower). For borrowers who have both undergraduate and graduate loans, monthly payments will be based on a weighted average of between 5% and 10% of their income, depending on the original principal balance of their loans.
Going forward, borrowers with original principal balances of $12,000 or less will receive loan forgiveness for any remaining balance, after making payments for 10 years. For borrowers with higher principal balances, the maximum repayment period before forgiveness increases by one year for every additional $1,000 borrowed.
Payments made before and after 2024 will also count towards the maximum forgiveness time frames.
Any borrower who consolidates a loan will not lose the progress they’ve made towards loan forgiveness. They will also receive credit for a weighted average of payments that count towards forgiveness based on the principal balance of the loans they’re consolidating.
In other words, previous loan payments before 2023 will still count towards the 10-year repayment period required for their loan forgiveness. Additionally, borrowers will receive credit for all payments made on the loans that they’re currently consolidating.
Borrowers will be able to receive automatic credit towards loan forgiveness for certain periods of deferment and forbearance, meaning that even if they’re not making payments on loans during a certain period, they’ll still receive credit towards the 10-year repayment period required for loan forgiveness.
Borrowers will also have the option to make additional “catch-up” payments to receive credit for all other periods of deferment or forbearance.
The last change starting next summer is that borrowers who are 75 days late and allow the Department of Education to securely access their tax information will automatically be enrolled in a IDR.
Michelle Walton, assistant director of financial aid at Salt Lake Community College, explained that depending on circumstances, the SAVE program may be a good option for students who are entering repayment.
“There are several things that will impact many students as they leave school,” Walton said. “Some students will see lower payments, others will receive credit towards loan forgiveness, and some students could go from default status to good standing.”
Walton believes that the new plan could also be an incentive for prospective students to attend college.
“These plans, along with available deferments, certainly provide some good options when students enter repayment,” she explained. “They also provide a safety net for students who do not earn as much as they expect when they begin repayment.”
Walton expressed that, even though it can seem intimidating, there are a lot of options for students entering repayment. And there are always people there to help them through it.
“Loan servicers are there to work with borrowers and help them find the best option,” she said. “[SLCC’s] Office of Financial Aid and Scholarships is also available to help answer questions.”
