Student loans significantly impact millions of Americans, and recent developments in student loan forgiveness have left borrowers with many questions. Here’s what you need to know about your student loans right now.

The Student Loan Forgiveness Debacle

Last August, millions of college grads felt a rush of excitement as President Joe Biden announced his student loan forgiveness plan. Federal student loan borrowers were told they could see up to $20,000 of their loans forgiven, affecting nearly 8 million borrowers automatically through Biden’s executive action plan.

The hefty plan included debt cancellation, loan forbearance, and income-driven repayment programs totaling billions. When you bring up spending billions in the government, such a plan will quickly find enemies.  

The Final Supreme Court Decision

Biden backed his original student loan forgiveness plan through the Heroes Act of 2003. This law grants the president broad power to revise student loan programs during national emergencies, such as the pandemic.

At least six lawsuits from red states and conservative groups went against the expensive policy, and two challenges made it to the Supreme Court. The Biden v. Nebraska challenge backed by six GOP-led states successfully blocked the president’s attempt, with the final decision of 6-3 against the loan forgiveness program.

When Payments Resume

At the start of the pandemic on March 13, 2020, the government issued a pause on eligible loans. This administrative forbearance is due to expire on September 1, 2023, with repayments starting in October 2023.

While millions of ex-students sigh amid resuming student debt payments, Biden is now pushing for a plan B for debt forgiveness.

Biden’s Backup Forgiveness Plan

In response to the Supreme Court’s decision, Biden announced a new income-driven repayment (IDR) plan on June 30, 2023. This plan, titled Saving on a Valuable Education or SAVE, may be able to cut some borrowers’ monthly student debt payments in half.

The Biden Administration also hopes to create an entirely new student loan forgiveness plan alongside SAVE, but those details are still to be determined.

The SAVE Basics

• You must have a Direct Loan in good standing to qualify
• Those already enrolled in the REPAYE plan will automatically receive this benefit
• Protected income is 225% of the Federal poverty guidelines
  This means a single person earning less than $32,805/year or a 4-person family earning less than $67,500 will not have to make payments

• The Department will stop charging a monthly interest not covered by the borrower’s payment

SAVE’s effects will most impact low- and middle-income borrowers, those in public service, and community college students. Those who make under $15 per hour will reap the greatest benefits, and anyone making over $15 an hour will save over $1,000 a year compared to other IDR plans.

How It Works

The SAVE plan aims to cut payments on undergraduate loans in half, from 10% to 5% of incomes above 225% of the Federal poverty line.

For example, a graduate making $40,000 would currently have a loan payment of roughly $151 which would drop to just $30 under SAVE.

A higher earner making $90,000 could see their $568 payment shrink to just $238 per month.

For more details on the SAVE plan, see here.

Will the SAVE Plan Become Law?

Biden’s plan B proposal is a helpful alternative for managing repayments as they kick back in, but it isn’t law yet. Biden is presenting the plan under the Higher Education Act (HEA). The HEA legislation was signed in 1965 that allows the secretary of Education some authority over borrowers’ education debt.

The original proposal was put into effect during the COVID national emergency, whereas a plan under HEA will have to go through the standard rulemaking process which can take as long as one year. If it’s approved, that is.

At the earliest, affected borrowers could see their slashed repayments by late summer or fall in 2024. For now, we’ll need to monitor the plan’s progress from bill to law.

Potential Routes to Loan Forgiveness

Before Biden’s first attempt to forgive federal loans, Americans had alternative loan forgiveness options that are still available today.

Public Service Loan Forgiveness (PSLF) Program

The PSLF program helps forgive the student loans of those in public service jobs. Teachers, lawyers, medical professionals, law enforcement, the military, government workers, and non-profit workers may qualify.

• Only Direct Loans qualify.
• Borrowers must be employed full-time by a qualifying public organization.
• Borrowers must make 120 qualifying payments before qualifying. Payments must be made in full within 15 days of the due date.

Total and Permanent Disability (TPD) Discharge Program

If you have been affected by a disability and cannot work or can only work minimally, you may be able to receive loan forgiveness through the TPD Discharge program.

Borrower Defense to Repayment Program

If you can prove that your school misrepresented key aspects of your program for you to enroll or remain in the program, you may qualify for debt relief.

The IDR Account Adjustment

The Biden Administration is currently implementing the IDR Account Adjustment. This initiative simplifies the repayment formula for IDR plans while also remedying the unfair lending practices that sometimes hide IDR options from borrowers.

Forgiveness Via Bankruptcy

For years it has been nearly impossible to include student loans when filing for bankruptcy, but a new policy issued last year allows borrowers to request a bankruptcy discharge on their student loans alongside a financial attestation form.  A judge will still need to approve the discharge, but it would alleviate the burden of student loan debt under extreme financial circumstances.

It’s Time to Handle Your Student Loan Debt

Government programs, forbearance, and loan forgiveness can lift the heavy weight of student loans, but borrowers cannot sit around and wait for these programs without taking action.

As student debt repayments kick back in, remember to:

• Understand your loans: take the time to sift through your loan types, interest rates, repayment terms, and repayment options, and discuss any questions with your loan services.
• Create a budget: be realistic and include loan repayments as part of your monthly expenses.
• Make timely payments by taking advantage of on-demand pay options offered by certain banks and getting your paycheck early. Elsewhere, avoid fees, dings on your credit score, and penalties by setting up automatic monthly payments.
• Explore repayment options: stay on top of developing loan forgiveness programs and become familiar with IDRs.