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Student Loan Update: No Forgiveness, But Perhaps a SAVE-ing Grace

by Lawrence Rand | August 4, 2023

In a significant blow to the Biden administration's student loan forgiveness plan, the Supreme Court has ruled against its implementation.  The court's decision, which came down in a 6-3 vote, deemed the proposed student loan forgiveness program as unconstitutional, stating that the President does not have the authority to unilaterally cancel federal student loan debt.

In response to the Supreme Court's ruling and with monthly payments resuming in October, the Biden administration has introduced the new Saving on a Valuable Education (SAVE) repayment plan.

Under this plan, instead of outright loan forgiveness, the government aims to ease the burden on borrowers by offering more flexible and income-driven repayment options.  The SAVE plan replaces the Revised Pay As You Earn (REPAYE) plan and has these important provisions:

  • Borrowers with relatively low incomes—single people earning less than $32,805 ($67,500 for a family of four) will have their payment amount set to $0 if they enroll in the plan.
  • Borrowers who have a payment that does not cover all the interest accruing on their loans each month will no longer have the remaining interest added to their balance.  The elimination of negative amortization means borrowers with low or $0 payments will no longer see their total loan balance constantly grow due to unpaid interest.
  • Married borrowers who file their taxes separately will no longer be required to include their spouse’s income in their payment calculation for SAVE.  Spouses will also be excluded from household size if they are enrolled in SAVE and file their taxes separately.
  • Once SAVE is fully implemented in July 2024, payments on undergraduate loans will be cut in half (from 10% to 5% of income above 225% of the poverty guidelines).
  • Borrowers who have undergraduate AND graduate loans will pay a weighted average of between 5% and 10% of their income based on the original principal balances of their loans.  More undergraduate debt = closer to 5%; more graduate debt = closer to 10%.

Borrowers who are already enrolled in the REPAYE plan will automatically be enrolled in SAVE.  Borrowers who want to switch plans or enroll in SAVE need to log into their Federal Student Aid account, update their contact information, review their loan application, provide income, review current income-driven plan or switch to a new plan, and agree to the terms to submit the application.

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