On June 30th, the Supreme Court invalidated the Biden administration’s student loan plan. Consequently, starting October 1st, 43 million Americans must resume student loan payments. This marks the first payment in over 3 years for them. Last year, the original forgiveness plan was in effect. The Education Department then issued a form for debt relief applications. This form offered up to $10,000 relief for most borrowers. Pell Grant recipients were eligible for up to $20,000. Over 26 million people applied for this relief. Before the Supreme Court’s intervention, over 16 million had approvals. With the plan’s cancellation, borrowers are now uncertain about their options. They are questioning, “What options do I have now?”.
Extra Leeway?
Just a few hours after the Supreme Court shut down President Biden’s student loan forgiveness plan, the White House looked to create several different avenues to provide support for borrowers affected by the ruling. One of these avenues provides borrowers some elbow room by creating a temporary 12-month on-ramp repayment program that runs from October 1, 2023, to September 30, 2024. This program helps borrowers avoid default if they miss a payment on or after October 1st. Also, if a borrower were to miss a payment within the 12-month on-ramp period, it would not be considered delinquent or be reported to credit agencies. It is important to note that interest will still accrue during this time even if payments are missed.
A New Repayment Plan
After the court’s decision, the education secretary indicated they will undergo a regulatory process to utilize the Higher Education Act of 1965 to cancel some student debt. The act allows the education secretary to forgive some student loans without relying on a national emergency. Along with the use of the Higher Education Act of 1965, the education department finalized a new income-driven repayment plan called “Saving on a Valuable Education” or SAVE. It will go into full effect on July 1, 2024. The plan will replace the existing REPAYE program. The new program’s creators state that it is “the most affordable repayment plan in history.” At its core, the SAVE plan reduces the minimum amount student loan borrowers would have to pay each month from 10% to 5% of their discretionary income (for undergraduate loans). Listed below are three aspects of SAVE that will take effect this Summer:
- Borrowers earning $32,800 or less, or a family of four earning $67,500 or less will not owe student loan payments.
- The plan eliminates accumulating interest if you make your scheduled payment each month
- The plan does not require a spouse to cosign the application. Also note, payment amounts for married borrowers who file separately will be based solely on that specific borrower’s income.
What Are the Benefits?
In July 2024, the Education Department is planning to implement the benefits outlined below as a result of the new SAVE plan.
- Borrowers with an original balance of $12,000 or less will receive forgiveness of their remaining balances after 10 years of payments (previously 20 years).
- The percentage of income protected from payments increases from the current 150% of poverty level to 225%.
- Borrowers will be allowed to make “catch-up” payments to receive credit for certain periods of deferments or forbearance if not automatically eligible for credit (deferments prior to 2013)
- Borrowers who are 75 days late on payments will automatically be enrolled in the plan and those enrolled in the REPAYE plan will also be automatically enrolled.
Conclusion
The new income-driven student loan repayment plan proposes a strategy to ease borrowers back into the student loan repayment process while providing additional benefits to borrowers with low income. If you would like additional information on this topic, please contact the team at Voisard to discuss how this may apply to you. We stand ready to assist.
