In a surprise move, the Biden Administration has extended the payment freeze for about 8 million student loan borrowers enrolled in the Saving on a Valuable Education SAVE plan. The action is amid lingering legal challenges that have kept key provisions of the SAVE plan on hold, which include reduced payments and loan forgiveness options.
The SAVE Plan explained
The SAVE plan takes effect in August 2023 and is an IDR program that is supposed to make student loan payments more affordable for borrowers. It replaces the previous REPAYE plan with additional benefits to ease financial burdens on borrowers. Under the SAVE plan:
- Payments on loans for undergraduate studies are capped at 5% of discretionary income monthly, half of what was required from the other plans at 10%.
- Borrowers whose original loan balances were $12,000 or less will see forgiveness after just 10 years of payments.
- For borrowers earning less than approximately $32,800 a year-a family of four earning $67,500- an estimated monthly payment as low as $0.
The SAVE plan is particularly helpful for low- and middle-income borrowers, community college students, and those working in the public service sectors.
Legal challenges and administrative forbearance
Despite all these positive attributes, the SAVE plan has not been without its streak of legal battle. A federal appeals court imposed a preliminary injunction on implementation of some of the provisions in the SAVE program pending the case in court. In turn, the Biden Administration had enrolled people in administrative forbearance status-which didn’t require them to pay any amount or accrue any interest for the time being. However, that time does not count for forgiveness purposes under the IDR plans and Public Service Loan Forgiveness programs.
The Education Department has said this administrative forbearance will remain in place for as long as necessary while legal disputes are being sorted out. Secretary of Education Miguel Cardona concluded saying, “borrowers currently enrolled in SAVE will be placed in an interest-free forbearance, so that they are not further burdened during this uncertain time.”
Who benefits from the extension?
The extension of the payment freeze benefits mainly:
- Low-income borrowers: Most of the borrowers below the poverty line could expect their monthly payments to be reduced to zero.
- Recent graduates: More often than not, graduates are barely getting into the workforce and, therefore, try to pay off student debts; this forbearance lets them focus on building financial stability first, rather than automatically having to pay off loans.
- Public service workers: Benefits could also be extended to the public service workers, as most of them are obligated to benefit from the forgiveness options provided under IDR plans.
The Department of Education estimates that around 360,000 borrowers borrowing $12,000 or less had been approved for loan forgiveness under previous provisions prior to legal challenges arising.
Future implications
While this extension provides temporary relief, the future of the SAVE plan remains in limbo. Ongoing litigation may dramatically change or even completely alter the student loan repayment options. “Advocacy groups want the Biden Administration to extend similar protections to all student loan borrowers, not just those already enrolled in SAVE, to ensure no borrower experiences undue hardship during these tumultuous times.”
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