“The Department of Education has officially implemented our new income-driven repayment (IDR) plan, which is expected to be the most affordable repayment plan in the history of our country,” stated Secretary of Education Miguel Cardona during a live press webinar on Thursday.
Known as the Saving on a Valuable Education (SAVE) plan, this IDR plan aims to significantly reduce borrowers’ monthly payments, with the possibility of reducing payments to zero dollars, cutting them in half, or saving borrowers at least $1,000 annually, according to a statement released by the White House.
Here are some key features of the SAVE plan, as outlined by the White House:
- Decrease the monthly payment requirement for undergraduate loan borrowers from 10% to 5% of their discretionary income.
- Implement a payment pause for individuals earning less than 225% of the federal poverty level, which is equivalent to an annual income comparable to a $15 minimum wage for a single borrower.
- Provide relief to borrowers who make regular monthly payments by not requiring them to pay any additional unpaid interest.
- Offer loan forgiveness after 10 years of payments, instead of the previous 20-year requirement, for borrowers with original loan balances of $12,000 or less.
It is important to note that the SAVE plan and other government initiatives do not extend to private student loans. If you have private student loans, you may consider refinancing your loans to obtain a lower interest rate and reduce your monthly payments. To explore refinancing options and obtain a personalized rate in just minutes, you can visit Credible.
Please note that the information provided above is based on the available sources and is subject to further updates and changes.
When will SAVE come into effect?
According to the White House, borrowers will have the opportunity to enroll in the SAVE program during the summer before student loan repayments resume in October.
Once payments recommence, the Education Department plans to initiate a 12-month “on-ramp” period for the repayment program, spanning from October 1 to September 30, 2024.
During this period, financially vulnerable borrowers who miss monthly payments will not face delinquency, credit bureau reporting, default, or debt collection agency referrals, as stated by the White House.
However, it’s important to note that interest will still accrue during this timeframe.
In a webinar, Bharat Ramamurti, National Economic Council deputy director, advised borrowers to make payments during this period to prevent interest accumulation and ensure eligibility for programs such as income-based repayment and public service loan forgiveness.
The Education Department will launch a dedicated application website for the SAVE program later this summer, as mentioned by the White House. Existing borrowers enrolled in an Income-Driven Repayment plan (IDR) or the Revised Pay As You Earn (REPAYE) program will be automatically enrolled in SAVE once the new plan is implemented.
These initiatives are part of the Education Secretary’s rulemaking process, utilizing his authority under the Higher Education Act to explore alternative paths for debt relief. The White House emphasized its commitment to providing relief to borrowers promptly and to as many individuals as possible.
The Education Department has released a notice as the initial step in formulating new regulations through the negotiated rulemaking process. A virtual public hearing is scheduled for July 18th, inviting stakeholders to provide written comments on the topics under consideration.