Three months after a student debt plan was struck down by the Supreme Court, the Biden Administration is offering a new income-driven repayment program that offers millions of low-wage borrowers some relief — although not the total loan forgiveness they had hoped for.
The court decision 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 loan payments 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.”
More than 4 million debt-riddled borrowers were automatically enrolled in the new SAVE program, 332,000 in California alone — and about 1 million more applications have been received since it went live July 30. Under the plan, those making around $15 an hour (or about $30,000 a year) won’t need to start repaying student loans until they begin earning above that threshold, a group the Biden administration estimates to include more than 1 million borrowers.
“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.
For years, onerous debt has plagued graduates in both the Bay Area and across the country. Across the country, 45 million Americans hold student loan debt, according to data from the Chamber of Commerce, with federal loans accounting for 92% of that overall debt.
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 when looking nationwide. Though the 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.”
Borrowers earning more than $15 an hour will still see their monthly payments 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.
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.
For every additional $1,000 owed above that $12,000 amount, the borrower would need to have one additional year of payments under their belt to qualify for leftover forgiveness, with a cap at 20 years for undergraduate loans and 25 for graduate ones.
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 country.
“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 an earlier income-driven payment program called REPAYE. The 4 million borrowers currently enrolled in the SAVE Plan were transitioned from REPAYE, a Department of Education spokesperson said.
Despite the popularity of these plans, 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 Sen. John Thune (R-SD) in a press release blasting the new program on Tuesday.
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.”
