Biden's SAVE Plan for Student Loan Borrowers: What You Need to Know

The Biden administration's Student Aid and Value (SAVE) plan, designed to lower monthly payments and speed up loan forgiveness for millions of borrowers, has been blocked by an appeals court. The 8th U.S. Circuit Court of Appeals sided with seven Republican-led states that sued to halt the plan, arguing that former President Joe Biden lacked the authority to establish it. This ruling has significant implications for student loan borrowers, the broader student loan debt crisis, and the economy. Here's what you need to know about the demise of the SAVE plan and alternative repayment plans to consider.



Immediate and Long-Term Implications for Borrowers

1. Higher Monthly Payments: Borrowers who had enrolled in the SAVE plan will likely see their monthly payments increase. The SAVE plan allowed borrowers to pay as little as 5% of their discretionary income for undergraduate loans and 10% for graduate loans, compared to the 10% for PAYE and 10-15% for IBR plans. This means borrowers will now have to pay more each month.
2. No More Interest Subsidy: The SAVE plan included an interest subsidy, which meant no interest would accrue if the borrower's IDR payment was less than the interest. This benefit is now lost, and borrowers will have to pay interest on their loans even if their payments don't cover it.
3. No More Quick Forgiveness: The SAVE plan offered debt forgiveness for some smaller loans in as few as 10 years. This option is now gone, and borrowers will have to wait the full 20 or 25 years for forgiveness under other IDR plans.



Impact on the Broader Student Loan Debt Crisis and the Economy

1. Increased Monthly Payments for Millions of Borrowers: The cancellation of the SAVE plan means that millions of borrowers will now have to pay higher monthly payments, which could strain their budgets and potentially lead to defaults if they cannot afford the increased payments.
2. Delayed Loan Forgiveness: Borrowers will now have to wait longer for their loans to be forgiven, which could have a significant impact on their financial well-being over the long term.
3. Economic Impact: The student loan debt crisis has been shown to have a significant impact on the broader economy. The cancellation of the SAVE plan could exacerbate these issues, leading to a decrease in consumer spending, a slowdown in economic growth, and a potential increase in income inequality.
4. Political Implications: The cancellation of the SAVE plan is also a political issue, with Republicans arguing that the plan was an example of executive overreach and that former President Biden lacked the authority to establish it. The ruling by the 8th U.S. Circuit Court of Appeals could have significant implications for future student loan relief efforts and the balance of power between the executive and legislative branches.
5. Legal Precedent: The ruling by the 8th U.S. Circuit Court of Appeals also sets a legal precedent for future student loan relief efforts. The court's decision to block the SAVE plan on the grounds that the Education Department exceeded its authority could make it more difficult for future administrations to establish similar programs, potentially leading to a more conservative approach to student loan relief in the future.

Alternative Repayment Plans and Strategies

In light of the SAVE plan's demise, borrowers should consider alternative repayment plans or strategies to manage their student loan debt. Here are some options:

1. Income-Driven Repayment (IDR) Plans: Borrowers can still opt for other IDR plans like Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Income-Contingent Repayment (ICR). These plans cap monthly payments at a certain percentage of discretionary income and extend the repayment period, potentially leading to loan forgiveness after 20 or 25 years.
2. Graduated Repayment Plan: This plan starts with lower payments that increase every two years for a total of 10 years. This option might be suitable for borrowers who expect their income to grow over time.
3. Extended Repayment Plan: This plan lowers payments by stretching the repayment period to as long as 25 years. Borrowers with high debt and low income might find this plan helpful, as it provides lower monthly payments. However, it's essential to note that this plan does not offer loan forgiveness like IDR plans.
4. Refinancing: Borrowers with good credit and steady income might consider refinancing their loans with a private lender to secure a lower interest rate. This option can help reduce monthly payments and the overall cost of the loan.
5. Public Service Loan Forgiveness (PSLF): Borrowers working in public service jobs, such as teachers, nurses, or government employees, may qualify for PSLF. This program forgives the remaining balance on their Direct Loans after they make 120 qualifying monthly payments under an eligible repayment plan while working full-time for a qualifying employer.

Borrowers should carefully evaluate these options and consider their individual financial situations when choosing the best repayment plan or strategy. It's also a good idea to use the Education Department's Loan Simulator to see how different plans might affect their repayment timeline and overall costs.

In conclusion, the cancellation of the SAVE plan has significant implications for student loan borrowers, the broader student loan debt crisis, and the economy. Borrowers should be aware of the immediate and long-term effects and consider alternative repayment plans or strategies to manage their student loan debt.