As Biden’s presidency ends, many Americans are concerned about the future of their student loans. The administration attempted and failed to execute various policies aimed at reducing debt for those with federal loans, but with the majority of the measures mired in legal procedures, many are wondering what options are there to pay off the debt faster or get it erased.
The SAVE proposal, which would have reduced monthly payments and eliminated exorbitant interest rates for millions of borrowers, has faced significant challenges. It would also have provided full student loan forgiveness after 10 to 25 years of payments, which disappointed many conservative legislators and political officials. However, several initiatives, such as PAYE and ICR, were made obsolete. The DOE encourages borrowers to join up for the two plans, which are currently back in open enrollment.
According to Alex Beene, a financial literacy instructor at the University of Tennessee at Martin,…PAYE and ICR plans existed before the Biden Administration’s introduction of SAVE, but were eventually integrated under the SAVE banner. The administration aims to reinstate prior plans to assist students who would have qualified for them, while the SAVE plan is presently stopped pending judicial proceedings.
The DOE announced that the $175 billion in student loan forgiveness that would have been offered through Save has been redirected to other schemes. While defending the SAVE plan in court, the Department is providing borrowers with repayment choices, including Public Service Loan Forgiveness, during the legal process. The interim final rule fulfills the Department’s statutory requirement under the Higher Education Act to allow borrowers to make payments on an income contingent repayment plan. The interim remedy allows borrowers to participate in two different repayment plans: Income Contingent Repayment (ICR) and Pay As You Earn (PAYE).We will share further information once the Department is ready to enroll new borrowers in these arrangements.
When the 8th Circuit Court of Appeals suspended the SAVE plan in August, eligible borrowers were offered the option to suspend their repayments as well. This prevented them from making payments or accruing interest on their debts, but also prevented them from achieving Student Loan Forgiveness.
The future of Student Loan repayment
After SAVE was suspended, the Income-Based Repayment (IBR) plan became the only active repayment option, leading many to choose for it. The IBR considers borrowers’ income and family size and offers debt forgiveness after 20-25 years. However, it comes with higher interest rates and increased costs for borrowers. This will change with PAYE and ICR.
According to Michael Lux, an attorney and founder of the Student Loan Sherpa, this is a significant breakthrough for borrowers who are eligible for PAYE but not IBR for new borrowers. It provides an opportunity to cut monthly bills and begin the path to forgiveness.
According to Kevin Thompson, CEO of 9i Capital Group and a finance expert, debtors who simply make minimal payments may struggle to stay afloat due to high long-term interest rates. Reopening these programs addresses imbalances in the student loan system and provides much-needed relief.”
However, Beene notes that the Trump administration has historically resisted similar projects. The reintroduction will bring respite to debtors, but how long that relief will endure remains to be seen.
Those with loans can begin taking advantage of the two new choices in 30 days, starting in mid-December.