July 20, 2024
The repayment plan drives down the cost of monthly repayments based on a borrower’s income and provides a pathway to eventual loan forgiveness for those with low student debt balances. 

More than 4 million student loan borrowers are enrolled in the Biden Administration’s new income-driven repayment plan, including nearly 332,000 borrowers in California.

“We’re not just lowering payments for today’s borrowers,” said Education Department Under Secretary James Kvaal. “We’re making paying for college more affordable for millions of future students.”

The repayment plan came after President Biden’s student loan forgiveness program was struck down by the Supreme Court earlier this summer, a move that blocked millions of borrowers from receiving up to $20,000 in federal student debt relief nationwide.

But unlike the earlier initiative, this repayment program — the Saving on a Valuable Education (SAVE) Plan — doesn’t immediately forgive debt. Instead, it drives down monthly repayments based on a borrower’s income, and provides a pathway to eventual loan forgiveness for those with low student debt balances.

“We’re highly confident that this plan is legally authorized,” said Bharat Ramamurti, the deputy director of the National Economic Council, referring to the Save Plan. “It was not a decision of choosing one or the other. We pursued both (the debt relief program and the SAVE Plan) because they serve different purposes.”

For years, onerous student debt has plagued students in both the Bay Area and across the country. In 2020, 3.8 million Californians owed over $142 billion in unpaid loans, according to an analysis from the Public Policy Institute of California — a number that shot up to $1.6 trillion nationwide. Though student loan payments were put on pause in March of 2020, students across the country will need to resume those payments in October.

“Even at a school like San Francisco State — which is cheaper — people still have to take out student debt,” said 20-year-old Noel Rangel, who borrowed around $15,000 to attend the university. “Seeing my peers graduate with so much debt is hard.”

Under the SAVE Plan, those making around $15 an hour (or about $30,000 a year) won’t need to make any loan repayments until they begin earning above that threshold, a group the Biden administration estimates to include more than one million borrowers. Those earning above that amount would still see their monthly repayments drop, the administration says, with a yearly savings of about $1,000.

Previous student loan repayment plans required borrowers to pay 10% of their disposable income toward their debt, but starting next summer, the SAVE Plan will reduce that amount to 5%. And balances won’t grow because of accruing interest, said Education Department Under Secretary James Kvaal, as long as borrowers keep up with their monthly loan payments.

“This plan is directed at people who earn less — and those are exactly the types of people who are likely to have trouble making their loan payments,” said Jacob Jackson, a research fellow at the Public Policy Institute of California.

Those income and repayment levels are based on information pulled from the Internal Revenue Service, with allowable adjustments if someone loses their income or experiences a salary drop. For those who borrowed $12,000 or less for undergraduate or graduate school, individuals will receive loan forgiveness after just 10 years of payments — a steep drop from the 20 to 25 years necessary for earlier income-driven repayment plans.

One additional year of payments will be added for every $1,000 above that amount before a loan is forgiven, with a cap at 20 and 25 years for undergraduate and graduate loans, respectively.

The new loan program has attracted interest even in a state like California, where students can find relatively generous levels of financial aid compared to the rest of the nation.

“I still meet students who say that they love their education, and they’re proud of their education, but they’re still paying off their debt. It’s like this cloud in the sky that’s still following them around,” said Coleetta McElroy, the director of financial aid at San Jose State University. “I know there’s this big budget that’s national, and we can look at the trillions of debt that we have. But this is a also an investment in our future.”

The SAVE Plan is an amended version of the Revised Pay as You Earn (REPAYE) plan, an earlier income-driven repayment program. The 4 million borrowers currently enrolled in the SAVE Plan are those who were transitioned from REPAYE, a Department of Education spokesperson said. Another 1 million borrowers have applied to the SAVE plan since the portal was launched on July 30.

Despite the surging interest, 17 Senate Republicans have already begun to push back against the program, with many stating it is unfair to those without student loan debt, along with individuals who have already paid off what they owed. They also claim the initiative is too costly: according to an analysis by the Penn Wharton Budget Model, the SAVE Plan has a price tag of $475 billion over 10 years.

“It’s incredibly unfair to those who never incurred student debt because they didn’t attend college in the first place or because they either worked their way through school or their family pinched pennies and planned for higher education,” said Senator John Thune (R-SD) in a press release blasting the new program on Tuesday.

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Thune and the other lawmakers invoked the Congressional Review Act on Tuesday, a move that allows lawmakers to overturn certain actions issued by federal agencies. But if that resolution makes it to President Biden’s desk, it’s almost certain it would result in a veto — one that would require a two-thirds majority in both chambers to override.

Across the country, the majority of Americans feel at least some federal student loan debt should be forgiven — though the more generous that relief is, the less it garners public support. Depending on the poll, between 55% to 65% of Americans support at least some student loan forgiveness. That support spikes considerably for those who hold student debt themselves.

“It would be beneficial to society if higher education didn’t cost so much,” said Rangel, speaking from the San Francisco State campus. “Gatekeeping education is a weird thing to do if you’re want your country to progress.”