If you have or are currently working towards a college degree, you likely have some kind of student loan debt. Student debt impacts millions of college students and graduates nationwide, and can strain their financial futures.
Experts estimate that there is about $1.6 trillion in outstanding debt spread across 45 million borrowers. This puts a significant economic burden on America’s middle class, especially when it comes to paying loans back in full. As anyone who has had to pay a college tuition bill lately can tell you, the cost of higher education in America has increased rapidly. The average student graduates with approximately $25,000 in debt that they must figure out how to pay back.
U.S. President Joseph Biden and Vice President Kamala Harris have promised student debt relief since their campaign days, but have only recently made progress on the issue. The Biden-Harris administration first devised a plan under the Higher Education Relief Opportunities for Students Act (HEROES Act). During the COVID-19 pandemic, Secretary of Education Miguel Cardona invoked this Act in order to reduce student debt for borrowers. This plan would have eliminated about $430 billion in student debt; however, six states challenged Cardona’s and Biden’s authority to take these actions.
The Supreme Court struck down the Biden administration’s student debt relief plan in Biden v. Nebraska in June 2023. The SCOTUS ruled that “the HEROES Act does not authorize the administration’s student loan forgiveness plan.” After this ruling, President Biden stated that even though the Supreme Court had struck down his plan, his team would move forward and find new solutions. The president then announced that his administration would attempt to pursue the same goal under a different law.
President Biden’s newest plan, the Saving on a Valuable Education (SAVE) Plan, is another income-driven repayment plan that will be replacing the Revised Pay As You Earn (REPAYE) Plan that many borrowers are currently under. Under the SAVE Plan, payments will be based on an individual’s discretionary income, which is the difference between one’s adjusted gross income and 225% of the poverty line. This means that payments are calculated to be the lowest possible to not put additional burdens on families or individuals who are paying back their student loans. Additionally, those who make less than $15 an hour (or $32,800 per year) will have a monthly repayment amount of $0. This plan will only apply to federal student loan borrowers in the United States, not private student loans.
Those who are already on the REPAYE Plan will not have to reapply for the SAVE Plan, but will simply be transferred over. The SAVE Plan will fully go into effect on July 1st, 2024, with many benefits starting as early as the end of 2023. Many experts estimate that over 1 million low-income borrowers will qualify and benefit from the $0 payment, while others will save at least $1,000 per month. Once benefits are fully implemented, borrowers will see their payments reduced from 10% of their discretionary income to 5%. Regarding interest, borrowers will no longer see their loan balances grow due to unpaid interest at the end of each month.
The White House and Department of Education are partnering with grassroots organizations for an outreach campaign called SAVE on Student Debt to help borrowers nationwide take full advantage of their benefits. They are also recruiting organizations such as the NAACP, the Student Debt Crisis Center, Civic Nation, and the National Urban League to hold briefings, run phone banks, and engage borrowers on social media. The Federal Student Aid website also has a federal loan repayment simulator that allows borrowers to input their information and determine which repayment plan works best for them.
But what about the future of student debt relief? Will the Supreme Court strike down this plan as well? Will this plan really help borrowers as much as the Biden administration says it will? How does this play into a discussion on federal loans versus private loans? The average private student loan is much higher than federal ones, which the SAVE Plan covers. But will the Biden administration address the increasingly concerning amount of private student loans held by Americans?
Legal scholars have said that the SCOTUS might have a harder time striking down the SAVE plan but will most likely make an attempt. As for whether the SAVE Plan will work, economists are split down the middle; some say that the government restarting loan repayments will drag down the economy and consumer spending, but the SAVE Plan will ultimately work in the long run. Others have no doubts about the SAVE Plan due to its variety of benefits and options for borrowers.
The Biden-Harris administration stands by its commitment to making a college degree more affordable for everyone in the United States, especially after the SCOTUS struck down its first plan. Secretary of Education Cardona describes the SAVE Plan as an “unprecedented action to fix the broken student loan system.” Only the future will tell if the SAVE Plan benefits graduates as the Biden-Harris administration claims.
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This article was edited by Sarah Davey.
