As the Biden presidency comes to a close, millions of Americans are wondering what will happen to their Student Loan Debt. The administration tried and failed to implement numerous policies to try to lessen the debt for those who have federal loans, but with most of the initiatives tied up in court proceedings, many are wondering what alternatives are left to pay down the debt quicker or just have it waived.
The Saving on a Valuable Education (SAVE) plan is the one that has been more challenging, as it would have lowered monthly payments and gotten rid of high interest for millions of borrowers.
It would have also offered full student loan forgiveness after 10 to 25 years of payments, which did not please many conservative politicians and elected officials. But it also had a few measures like the Pay-As-You-Earn (PAYE) and Income-Contingent Repayment (ICR) made obsolete.
These are now back in open enrollment, and the Department of Education (DOE) is once again encouraging borrowers to sign up for the two plans.
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “PAYE and ICR plans were around prior to the introduction of SAVE under the Biden Administration but were ultimately combined into the SAVE umbrella.
With the SAVE plan currently suspended as it continues to make its way through the court system, the administration is planning to reintroduce those former plans in order to help students who would have qualified for them.”
The DOE also made statements regarding their $175 billion in Student Loan Forgiveness that would have been provided through Save and is now funnelled through other plans. “As the Department continues to defend the SAVE plan in court, it is taking action to ensure borrowers have options to repay their loans—especially those seeking Public Service Loan Forgiveness—while the litigation continues.
The interim final rule ensures the Department can meet its statutory obligation under the Higher Education Act to let borrowers make payments on an income-contingent repayment plan. It does this through a stopgap measure that reopens enrollment for borrowers in two other repayment plans: Income Contingent Repayment (ICR) and Pay As You Earn (PAYE). We will provide more information when the Department is ready to begin enrolling new borrowers in these plans.”
This is because when the SAVE plan was put on hold by the 8th Circuit Court of Appeals in August, borrowers who qualified were given the choice to put their repayments on hold as well. This meant that they didn’t have payments due and no interest built, but they also couldn’t work toward paying off their loans or get any closer to Student Loan Forgiveness.
The Future Of Student Loan Repayment
Since after SAVE was paused, there was only one other repayment plan active, the Income-Based Repayment (IBR) plan, many chose to take advantage of it. The IBR also takes into account borrowers’ income and family size and allows some to achieve debt forgiveness after 20 or 25 years, but it has higher interest rates and is more costly for borrowers. This will all change now that PAYE and ICR are in place.
As Michael Lux, an attorney and founder of the Student Loan Sherpa, explains, “For borrowers who are eligible for PAYE but not IBR for new borrowers, this is a big development and an opportunity to potentially lower their monthly bill and start making progress toward forgiveness.”
Kevin Thompson, a finance expert and the founder and CEO of 9i Capital Group, agreed with the enthusiastic take: “With long-term interest rates remaining high, borrowers making only minimum payments are finding it increasingly difficult to stay afloat. Reopening these programs helps address inequities in the student loan system while offering much-needed relief.”
But this enthusiasm is tempered by Beene, who cautions “The Trump administration has opposed most efforts for similar programs. The reintroduction will provide relief for borrowers, but how long that relief will last is to be seen.”
Those with loans can start taking advantage of the two new options in 30 days, beginning in mid-December.
