ED Announces Early Implementation of Student Loan Forgiveness for Borrowers Enrolled in SAVE Plan
By Maria Carrasco, NASFAA Staff Reporter
The Department of Education (ED) on Friday announced that starting in February, eligible borrowers enrolled in the Saving on a Valuable Education (SAVE) repayment plan will have their federal student loan debt forgiven as part of an early implementation of a SAVE plan provision.
The borrowers eligible for this student loan forgiveness must be enrolled in the SAVE repayment plan, have at least 10 years of repayment history, and have originally borrowed $12,000 or less in federal student loans.
Under the SAVE plan, the maximum time frame for repayment is 20 years for undergraduate debt and 25 years for debt incurred for graduate or professional study. A provision of the final rule of the SAVE plan indicates that low-balance borrowers can see student loan forgiveness in as few as 10 years if their original principal balance was less than $12,000. Additionally, for each $1,000 borrowed above $12,000, a borrower can receive forgiveness after an additional year of payments.
Initially, this provision would have become effective on July 1, 2024. However, ED stated through the Federal Register that it would implement this provision early through its authority under the Higher Education Act (HEA) on January 21.
Here’s an up-to-date timeline on implementation of various provisions of the SAVE plan:
Already Implemented
- Auto-Renewal: If a borrower consents to disclose their tax information, their monthly payment will be adjusted and their enrollment in IDR (including SAVE) will be automatically recertified every year
- Automatic re-enrollment: Borrowers will be automatically enrolled into SAVE if they are currently enrolled in or recently applied to the REPAYE plan (which will be replaced by the SAVE plan)
- Elimination of negative amortization
- Income below 225% of the poverty line is protected
- Excludes spousal income for borrowers who are married and file separately
- 20 years to cancellation for undergraduate debt (25 years for graduate debt)
- Elimination of requirement for borrowers returning to SAVE after having previously been on another repayment plan to provide income documention for years not on REPAYE/SAVE
Implementation set for January 21, 2024
- Early cancellation for low-balance borrowers
Set for early implementation, but no implementation date set
- Automatic credit toward forgiveness for certain periods of deferment and forbearance
Implementation set for July 1, 2024
- Monthly payment equals 5% of discretionary income for undergraduate debt and 10% for graduate debt
- Credit for consolidation loans that include loans with qualifying payments equal to the weighted average of pre-consolidation qualifying payments made
- Automatic IDR enrollment for borrowers who are 75 days or more late with their monthly payment
- Restricting new enrollment in certain IDR plans
According to ED on Friday, eligible borrowers will have their debts canceled immediately starting next month with no action necessary on the borrower’s part. And the department will continue to identify and discharge the loans of eligible borrowers on a regular basis.
Additionally, ED stated it is beginning an outreach and email campaign to encourage borrowers not currently enrolled in the SAVE repayment plan to enroll because they may be eligible for forgiveness. The department will also work with the SAVE on Student Debt coalition and other organizations to reach borrowers.
ED noted that this provision will particularly help borrowers who attended community college and estimates that the SAVE Plan will make 85% of future community college borrowers debt free within 10 years.
“Today’s announcement will help struggling borrowers who have been making loan payments for years, including many who never graduated from college,” ED Under Secretary James Kvaal said in a statement. “Giving borrowers with smaller loans a faster path to being debt free will help many borrowers avoid financial distress and have peace of mind.”
Along with the announcement, ED said on Friday there are over 6.9 million borrowers enrolled in the SAVE repayment plan as of early January. ED in a press release listed a state-by-state breakdown of borrowers enrolled in the SAVE plan. However, ED did not indicate how many borrowers would be eligible for forgiveness through Friday’s announcement.
“This action will particularly help community college borrowers, low-income borrowers, and those struggling to repay their loans,” President Joe Biden said in a statement. “And, it’s part of our ongoing efforts to act as quickly as possible to give more borrowers breathing room so they can get out from under the burden of student loan debt, move on with their lives and pursue their dreams.’
Rep. Virginia Foxx (R-N.C.), chairwoman of the House Committee on Education and the Workforce, responded saying that Friday's announcement would exacerbate college costs and that the Biden administration is “downright desperate to buy votes before the election.” Foxx, in her statement, also highlighted her latest bill, the College Cost Reduction Act, which seeks to address issues around college cost, accountability, and transparency.
“It would surprise no one if the Department relied on infants playing with abacuses to balance its books – it is a complete and utter disaster,” Foxx said in a statement. “House Republicans, on the other hand, have already put forth fiscally responsible solutions, such as the College Cost Reduction Act, to address the rising costs of college for students and families across the country. It’s clear that the Biden administration needs a good old-fashioned dose of fiscal common sense – all it knows how to do is spend like a drunken sailor.”
Additionally, Sen. Bill Cassidy (R-La.), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, said “this new allocation of time and resources” by ED comes as it has “failed to properly implement” the 2024-25 FAFSA and is “threatening students’ access to financial aid services for college.”
“The Biden administration’s priorities are out of whack,” Cassidy said in a statement. “They are blundering the roll out of FAFSA—even though they had a legal obligation and 3 years to prepare. Meanwhile, they are speeding up the timeline for their student loan schemes to transfer hundreds of billions of student debt onto Americans that chose not to go to college or already worked to pay off their loans.”
Publication Date: 1/16/2024
Robert W | 1/16/2024 11:36:21 AM
This is wonderful current news for the borrowers and schools and some politicians running for re-election but not so swell news, in the long run, for the taxpayers and/or citizens of our country. Our ever growing national debt could turn our dollar from the world currency status it enjoys today to mediocrity. Just my thoughts only.
Jeff A | 1/16/2024 10:41:20 AM
The math on SAVE truly is incredible and extremely confusing for our profession to address. Technically, a student should borrow everything they are eligible for whether they need it or not. The relationship between how much you borrow and your monthly payments has been mostly eliminated. At least you would never have to pay anywhere near what you should be able to afford. For most that can't afford any payments, that is exactly what their payment is: $0, and get credit for having made a payment. No risk to try higher ed.
I'm still baffled on what we tell our students as more and more come to understand and get coached on this opportunity that:
In many situations there will be a tipping point where each additional dollar you borrow
will be forgiven. And often that tipping point may be a very low amount of debt, and
often the very first dollar of debt.
If you have very low income, why wouldn't you enroll in a low-cost institution, borrow the annual limit in fed loans and drop after a period realizing that for you, SAVE is actually just a stipend for sitting in some classes.
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