A new student loan repayment plan called the SAVE plan could lead to gradual loan forgiveness for borrowers, despite the Supreme Court’s recent rejection of President Biden’s widespread loan forgiveness proposal.
The new plan: The Saving on a Valuable Education (SAVE) plan is a complex income-driven repayment plan set to replace the current Revised Pay As You Earn plan (REPAYE).
* Under the previous REPAYE plan, borrowers repaid $10,956 for every $10,000 borrowed, whereas under SAVE, they will pay back just $6,121.
* The SAVE plan potentially makes a million more borrowers eligible for $0 monthly payments and halts interest accumulation for those making their monthly payments.
* Undergraduate borrowers with loans below $12,000 can have their debts forgiven after just 10 years of payments, with each additional $1,000 adding another year of required payments.
* SAVE will cost the U.S. government an estimated $138 billion to $361 billion over the next decade.
Who can apply: SAVE is open to borrowers with federally held loans such as direct subsidized, unsubsidized, consolidated, and PLUS graduate loans.
* Parent PLUS Loans are not eligible for SAVE.
* Current holders of Federal Family Education Loans (FFEL) or Perkins Loans from a commercial lender would need to consolidate into a direct loan to qualify.
How and when to apply: The Department of Education advises borrowers to apply now for REPAYE, which will be automatically transitioned to SAVE when changes take effect later this year, providing they have applied.
* Formal applications for SAVE have not been released yet.
* Payments are set to resume in October, with interest starting to build again in September.
Legal prospects: Some experts believe SAVE could face legal challenges, but it is considered less legally vulnerable than the recently rejected debt forgiveness plan.
* While the Supreme Court rejected the HEROES Act-based forgiveness plan, SAVE relies on the Higher Education Act, which has allowed the Department of Education to create and modify income-driven repayment plans for years without legal interference.
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