Student loan forgiveness: Biden announces another round of relief under SAVE plan

U.S. President Joe Biden at a news conference with Fumio Kishida, Japans prime minister, not pictured, during a state visit in the Rose Garden of the White House in Washington, DC, US, on April 10, 2024. Photographer: Al Drago/Bloomberg via Getty Ima

Student loans for another 206,000 borrowers are being forgiven by the Biden administration as part of the SAVE plan, a new repayment plan that offers a faster route to forgiveness. 

The SAVE plan, which is short for "Saving on A Valuable Education," launched in August and replaced a previous IDR plan called Revised Pay As You Earn (REPAYE). 

On Friday, the U.S. Education Department shared an update on the progress of its SAVE plan and announced the latest round of cancellations. More people are becoming eligible for student loan cancellation as they hit 10 years of payments, a new finish line for some loans that’s a decade sooner than what borrowers faced in the past.

With the latest action, the Education Department has now approved cancellation for about 360,000 borrowers through the new repayment plan, totaling $4.8 billion.

Here’s what to know about the latest round of cancellations and the SAVE plan:

SAVE student loan repayment plan: Key highlights

Congress created the first income-driven repayment (IDR) option in the 1990s for people struggling to afford payments on standard plans. It capped monthly payments to a percentage of their incomes and canceled any unpaid debt after 25 years. 

Similar plans were added later, offering cancellation in as little as 20 years.

Arguing that today's borrowers need even more help, the Biden administration merged most of those plans into a single repayment option with more lenient terms.

Biden announced the SAVE plan in 2022 alongside his broader proposal for a one-time cancellation of up to $20,000 for more than 40 million people. While the one-time cancellation was struck down by the Supreme Court, the SAVE Plan moved forward and initially escaped legal scrutiny.

Roughly 8 million borrowers are now enrolled in the SAVE plan, according to the White House. More than half of this group — 4.5 million people — have qualified for $0 monthly student loan payments because they have lower incomes.

Some key things to know about the SAVE plan: 

  • Borrowers earning $32,800 or less individually (roughly $15 dollars per hour), are eligible for a $0 monthly payment under the plan. Those who earn less than $67,500 for a family of four will see $0 monthly bills.
  • Most other borrowers will see their monthly payments on undergraduate loans cut in half. Currently, it’s calculated to be 10% of the borrower’s discretionary income, but in July 2024, that number will drop to only 5%.
  • For those who make monthly payments, interest won't build up on their student loan balance.
  • Those who borrowed $12,000 or less will receive complete student loan forgiveness after 10 years of payments, instead of 20 to 25 years. Those who borrowed more than $12,000 will see their repayment term rise by one year for every additional $1,000 borrowed. Example: Originally borrowing between $12,001 and $13,000 means a student will see their balance wiped away after 11 years.

Biden’s latest student loan forgiveness

The Education Department on Friday said another 206,800 borrowers enrolled in the SAVE plan have been given student loan relief. These borrowers had smaller loans for their postsecondary studies, the department said.

Another 65,800 borrowers received forgiveness through administrative adjustments to income-driven repayment counts "that have brought borrowers closer to forgiveness and address longstanding concerns about the misuse of forbearance by loan servicers," the department said.

Lastly, another 4,600 borrowers had their student loans canceled through fixes to the Public Service Loan Forgiveness (PSLF), according to the Education Department.

"As long as there are people with overwhelming student loan debt competing with basic needs such as food and healthcare, we will remain relentless in our pursuit to bring relief to millions across the country," U.S. Secretary of Education Miguel Cardona said in a statement.

Lawsuits cast shadow over student loan cancellations

Casting a shadow over the cancellations, however, are two new lawsuits challenging the plan's legality.

Republican attorneys general in 18 states are pushing to have the plan tossed and to halt any further cancellation. 

They say the SAVE Plan goes beyond Biden’s authority and makes it harder for states to recruit employees. They say the plan undermines a separate cancellation program that encourages careers in public service.

It’s unclear what the suits could mean for loans that have already been canceled. A court document filed by Kansas' attorney general says it's "unrealistic to think that any loan forgiveness that occurs during this litigation will ever be clawed back."

The lawsuits don't directly address the question, and the attorneys general didn't immediately respond to an Associated Press request.

The Education Department says Congress gave the agency power to define the terms of income-driven payment plans in 1993, and that authority has been used in the past.

Biden’s latest one-time cancellation proposal after SCOTUS ruling

Meanwhile, Biden is again trying a one-time student loan cancellation – a proposal separate to the SAVE payment plan. 

In a visit to Wisconsin on Monday, he highlighted a proposal to reduce or cancel loans for more than 30 million borrowers in five categories.

The proposal has been in the works for months after the Supreme Court rejected the president’s first try at mass cancellation, according to the Associated Press. 

Biden called the high court’s ruling a "mistake" but ordered the U.S. Department of Education to develop a new plan using a different legal authority. The latest proposal is more targeted than his original plan, focusing on those for whom student debt is a major obstacle, the AP reported.

Biden’s first attempt at widespread student loan cancellation would have erased $10,000 for borrowers with yearly incomes of up to $125,000, plus an additional $10,000 if they received federal Pell grants for low-income students. 

It was estimated to cost $400 billion and cancel at least some student debt for more than 40 million people.

The Supreme Court rejected that plan last year, saying Biden overstepped his authority.

The new plan uses a different legal justification — the Higher Education Act, which allows the secretary of education to waive student loan debt in certain cases.  The Education Department has been going through a federal rulemaking process to clarify how the secretary can invoke that authority.

The new plan targets five categories of borrowers, focusing on those believed to be in the greatest need of help. It would provide relief to an estimated 30 million borrowers. 

The administration has not said how much the plan would cost.

The Associated Press contributed to this report. It was reported from Cincinnati.