Biden Administration to Fast-Track Debt Erasure for Thousands of Student Loan Borrowers
In a surprising move, the Biden administration has announced plans to expedite a major change that will eliminate the debts of thousands of federal student loan borrowers. Initially scheduled for July, this debt erasure will now take place sooner, benefiting both undergraduate and graduate students who initially borrowed less than $21,000.
The Cancellation Process
The Biden administration’s debt cancellation plan will work as follows: In February, individuals who have borrowed $12,000 or less in federal student loans and have been in repayment for at least 10 years will have their debts automatically erased. The prerequisite for this debt relief is enrolling in the Biden administration’s new income-based repayment plan, known as SAVE. Regardless of their previous repayment plans, as long as borrowers have been actively repaying their loans and now enroll in SAVE, their debts will be forgiven.
Moreover, for each additional $1,000 of debt, the forgiveness window will extend by one year. For instance, a student who borrowed $13,000 will have their debts erased after 11 years of repayment, while those who borrowed $14,000 will have their debts forgiven after 12 years, and so on. Importantly, the policy will be based on the initial amount borrowed by students, rather than their current debt levels.
President Biden expressed his pride in implementing this provision of the SAVE plan ahead of schedule, stating, “Today’s announcement gives borrowers an even greater reason to check out the SAVE plan and find out if they may qualify for earlier debt relief.”
Assisting Vulnerable Borrowers
Education Under Secretary James Kvaal emphasized that this policy change will benefit a particularly vulnerable group of federal student loan borrowers. He highlighted that this group primarily consists of individuals with low incomes, with approximately three-quarters of them receiving Pell Grants. Additionally, about one-third of them began their education at community colleges. Notably, over 60% of borrowers with defaulted loans originally borrowed less than $12,000.
Kvaal further explained that many of these low-debt borrowers share a common characteristic: they did not complete a degree. Historically, non-completers have struggled to repay their debts due to the lack of higher earning potential associated with a degree. Consequently, this policy provides debt relief specifically for borrowers who have spent less time within the student loan system.
The SAVE Plan: A Forgiving Repayment Option
To qualify for the fast-tracked forgiveness announced by the Biden administration, borrowers must enroll in the SAVE plan. This plan has become a key element of President Biden’s debt relief efforts following the Supreme Court’s rejection of his broader relief plan. Starting in February, borrowers enrolled in SAVE will receive notifications regarding the eligibility of their debts for cancellation, requiring no further action on their part.
The administration also revealed that as of early January, 6.9 million borrowers have enrolled in SAVE, with over half of them, approximately 3.9 million, having incomes low enough to qualify for a $0 monthly payment. In contrast to previous plans, the SAVE plan exempts a larger portion of a borrower’s income from the monthly payment calculation. Additionally, under SAVE, accumulated interest does not exceed what borrowers can afford to pay each month. This eliminates the issue faced by borrowers on previous plans, where their low or $0 payments failed to cover the monthly interest, resulting in interest ballooning over time.
One of the most notable aspects of the SAVE plan is that it offers multiple opportunities for loan forgiveness. Consequently, many borrowers will end up paying significantly less over time compared to the old repayment plans. The Department of Education itself acknowledged that under a previous plan for low-income borrowers, borrowers repaid an average of $10,956 for every $10,000 borrowed. However, under SAVE, the repayment amount is reduced to just $6,121.
Opposition and Biden’s Stand
Republicans in Congress have opposed the SAVE plan, viewing it as an attempt by President Biden to gain support before the election. The Republican chair of the House Education Committee, Virginia Foxx of North Carolina, criticized the Department of Education’s handling of the student debt issue, calling it a disaster. Nonetheless, President Biden has affirmed that even if Congress presents a bill seeking to eliminate SAVE – an unlikely scenario since the Senate opposes it – he will veto it.
Conclusion
The Biden administration’s decision to expedite the erasure of federal student loan debts for thousands of borrowers reflects its commitment to providing relief to individuals burdened by student loan repayments. By implementing the SAVE plan, borrowers will have the opportunity to significantly reduce their debt obligations, with the potential for complete forgiveness in certain cases. However, the exact number of borrowers who will qualify for immediate debt cancellation through this policy change is yet to be determined. As the administration continues to prioritize addressing the student debt crisis, the SAVE plan represents a significant step forward in relieving the financial burden faced by many Americans.
This article is republished from NPR. Read the original article here.