Millions of Americans are set to witness a significant reduction in their student loan payments starting in July as President Joe Biden’s new income-based plan for debt repayment, Saving on a Valuable Education (SAVE), takes effect.
Millions to Experience Payment Reductions
The Education Department announced that at least 7.5 million Americans will benefit from implementing the SAVE plan, which offers lower payments than traditional repayment plans like Income-Based Repayment and Pay-as-you-earn.
Overview of the SAVE Plan
SAVE introduces a higher income exemption threshold before repayment begins, potentially leading to zero-dollar monthly payments for many borrowers.
10% of Discretionary Income to Form Basis of Repayment
The amount is based on only 10% of disposable income for those still required to pay, making it a good choice for borrowers of federal student loans.
Eligibility and Potential Benefits
Attorney and Student Loan Sherpa founder Michael Lux emphasized that nearly all federal student loan borrowers are eligible for the new SAVE plan, with some needing to consolidate their loans for eligibility.
Full and Early Debt Forgiveness
Under the plan, early forgiveness options are available after ten years, with the possibility of full forgiveness after twenty or twenty-five years of repayment.
Payment Plans Based on Discretionary Spend Limit Cut to Half
Starting July 1, borrowers with undergraduate loans may see their payment plan adjusted to reflect just 5 percent of discretionary income, down from the previous 10 percent.
Exceptions
However, those with graduate school debt will maintain the 10 percent rate, while borrowers with both will have an adjusted rate somewhere between.
Impact on Borrowers’ Finances
The SAVE plan’s reduced payments could be transformative for borrowers.
For instance, someone making $70,000 annually could see their monthly payments cut in half, providing them with more disposable income amid economic challenges.
Criticism and Legal Challenges
However, Biden’s SAVE plan has already faced criticism, including threats of legal action from Kansas Attorney General Kris Kobach.
Biden Committed to SAVE
Despite these challenges, Biden remains committed to his student loan relief initiatives, which include federal loan forgiveness for public service workers and long-term borrowers.
Biden’s Relief For Students Facing Debt
As promised by Biden upon taking office, over 3.7 million Americans have had their student debt forgiven nationally.
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