How the New SAVE Plan Will Affect Borrowers

The Supreme Court invalidated President Joe Biden’s student loan debt relief plan, meaning the long-delayed proposal intended to implement a campaign trail promise will not go into effect. The Supreme Justices, divided 6-3, ruled in one of two cases that the program was an unlawful exercise of presidential power because it had not been explicitly approved by Congress.

The court rejected the Biden administration’s arguments that the plan was lawful under a 2003 law called the Higher Education Relief Opportunities for Students Act, or HEROES Act. The law says the government can provide relief to recipients of student loans when there is a “national emergency,” allowing it to act to ensure people are not in “a worse position financially” as a result of the emergency.

As a result of that, the plan which would have allowed eligible borrowers to cancel up to $20,000 in debt has been blocked. Since about 43 million Americans will not be receiving forgiveness, the ruling puts tremendous pressure on the U.S. government to find an alternative avenue to forgive student debt borrowers. The Biden administration recently announced it would take another swing at the process, by using authority from the Higher Education Act to create a debt forgiveness regulation.

The new SAVE plan is intended to be more generous than prior Income-Driven Repayment options, particularly for those with only undergraduate debt. It will also eliminate negative amortization to prevent balances from growing even when borrowers make payments and make it easier to reach loan forgiveness after years of payments. These new provisions have been long sought by advocates. 

By law, the regulations will go fully into effect on July 1, 2024. But the Department will implement three critical benefits this summer before the student loan payment pause ends:

• The amount of income protected from payments on the SAVE plan will rise from 150 percent to 225 percent of the Federal poverty guidelines (FPL). This change means a single borrower who earns less than $32,805 a year ($67,500 for a family of four) will not have to make payments. As a result, we estimate that more than 1 million additional low-income borrowers will qualify for a $0 payment, including 400,000 who are already enrolled in the REPAYE plan and will see this benefit applied automatically. This will allow them to focus on food, rent, and other basic needs instead of loan payments. Borrowers not eligible for a $0 payment will save at least $1,000 a year compared to the current REPAYE plan. A single borrower would save $91 a month on payments ($1,080 a year), while a family of four would save $187 ($2,244 a year).

• The Department will stop charging any monthly interest not covered by the borrower’s payment on the SAVE plan. As a result, borrowers who pay what they owe on this plan will no longer see their loans grow due to unpaid interest. We estimate that 70 percent of borrowers who were on an IDR plan before the payment pause would stand to benefit from this change.

• Married borrowers who file their taxes separately will no longer be required to include their spouse’s income in their payment calculation for SAVE. These borrowers will also have their spouse excluded from their family size when calculating IDR payments, simplifying the choice of repayment plan for borrowers.

The Biden-Harris Administration remains committed to making college more affordable and ensuring student debt isn’t a roadblock in accessing education or opportunities. In addition, the Administration has made the largest increase to Pell Grants in a decade and has proposed to double the maximum Pell Grant and make community college free to reduce the need for students to take out unaffordable debt in the first place. Interested borrowers can sign up for the SAVE/REPAYE plan by visiting StudentAid.gov/IDR or schedule a complimentary consultation with our highly skilled counselors to learn more.