With just weeks to go until borrowers must start paying their federal student loans for the first time in three years, the Biden administration on Tuesday officially launched its income-driven student loan repayment plan, setting off on a new outreach blitz.
The Saving on a Valuable Education, or SAVE, plan was finalized in the wake of the Supreme Court’s decision to overturn President Joe Biden’s student loan forgiveness program. The new plan lowers monthly payments for borrowers based on income, halts loans from growing due to unpaid interest and lessens requirements for low-balance borrowers to receive forgiveness.
“It’s the most affordable student loan plan ever,” Biden declared in an announcement video, adding education beyond high school should be a “ticket to the middle class, not a burden that weighs people down for decades to come.”
Student borrowers can fill out an application on the federal student aid website. People are encouraged to apply within the next few days as applications will take around four weeks to process, an administration official said.
Interest will start to accrue on student loans in September and borrowers will have to start making payments again in October.
However, some parts of this plan – specifically the lowering of monthly payments from 10% of a person’s discretionary income to 5% for undergraduate loans – will not go into effect until next year.
The administration estimates more than 20 million people could benefit from the plan and the typical borrower will save around $1,000 a year.
As part of Tuesday’s announcement, the administration is kicking off the “SAVE on Student Debt” outreach campaign in which it will partner with organizations to help make borrowers aware of the program. Those organizations include Civic Nation, the NAACP, the National Urban League, Rise, the Student Debt Crisis Center, UnidosUS and Young Invincibles.
The Department of Education also says it will directly contact borrowers to encourage them to apply over the next few days.
In June, the Supreme Court’s conservative majority determined that the Biden administration’s plan to cancel up to $400 billion in student loans overstepped the White House’s constitutional authority.
Following the ruling, the Biden administration announced it will try a new path to forgiving debt under the Higher Education Act of 1965. That plan is expected to take months to finalize.
The administration also announced a 12-month “on-ramp” repayment plan in which borrowers will not receive harsh financial penalties, such as being reported to credit bureaus or debt collection agencies, if they miss a payment between Oct. 2023 and Sept. 2024. The idea is to ease borrowers into paying federal loans after the three-year pandemic pause.