October 4, 2023

A Biden plan slashes student loan payments by millions to $0. Will it be the next legal battle?

WASHINGTON (AP) — The Biden administration calls it a “student loan safety net.” Opponents call it a backdoor to make university free. And it could be the next battleground in the legal battle over the student loan exemption.

Starting this summer, millions of Americans with student loans can enroll in a new installment plan that offers some of the most lenient terms ever. Interest will not accumulate as long as borrowers make regular payments. Millions of people will reduce their monthly payments to $0. And in just 10 years, all remaining debts will be forgiven.

It’s known as the SAVE Plan, and while it was announced last year, it was largely overshadowed by President Joe Biden’s proposal to end massive student loans. But now, after the Supreme Court rejected Biden’s pardon plan, the repayment option has taken center stage.

Since the ruling, Biden has proposed an alternative approach to canceling debt and also shifted attention to the lesser-known initiative, calling it “the most affordable installment plan ever.” The typical borrower who enrolls in the plan saves $1,000 per month, he said.

Republicans have fought against the plan, saying it exceeds the president’s authority. Senator Bill Cassidy, the leading Republican on the Health, Education, Labor, and Pensions Committee, called it “deeply unfair” to the 87% of Americans who have no student loans.

The Congressional Budget Office previously estimated that the plan would cost $230 billion over the next 10 years, which would be even higher now that the forgiveness plan has been discontinued. Estimates from researchers at the University of Pennsylvania put the cost at $361 billion.

Emboldened by the Supreme Court’s decision on cancellation, some opponents say it’s only a matter of time before the repayment plan also faces a legal challenge.

Here’s what you need to know about the SAVE plan:


The U.S. Department of Education offers several plans for repaying federal student loans. Under the Standard plan, borrowers are charged a fixed monthly fee that ensures all their debts are repaid after 10 years. But if borrowers struggle to pay that amount, they can enroll in one of four plans that offer lower monthly payments based on income and family size. Those are known as means-tested repayment plans.

Means-tested options have been offered for years and generally limit monthly payments to 10% of a borrower’s discretionary income. If a borrower’s income is low enough, their bill is reduced to $0. And after 20 or 25 years, all remaining debt is erased.


As part of his debt relief plan announced last year, Biden said his education department would create a new income-driven repayment plan that would cut payments even further. It became known as the SAVE plan and is generally intended to replace existing income-driven plans.

Borrowers can apply later this summer, but some changes will be implemented over time.

Immediately, more people will be eligible for $0 payments. The new plan does not require borrowers to make payments if they earn less than 225% of the federal poverty line — $32,800 a year for a single person. In contrast, the limit for current plans is 150% of the poverty line, or $22,000 a year for a single person.

Another immediate change aims to prevent interest from snowballing.

As long as borrowers make their monthly payments, their total balance will not increase. Once they cover their adjusted monthly payment — even if it’s $0 — all remaining interest is waived.

Other major changes will take effect in July 2024.

Notably, payments on undergraduate loans will be capped at 5% of discretionary income, up from 10% now. Those with graduate and undergraduate loans pay between 5% and 10%, depending on their original loan balance. For millions of Americans, monthly payments could be reduced by half.

There will also be a faster path to loan forgiveness next July. From then on, borrowers with an opening balance of $12,000 or less will have the remainder of their loans canceled after 10 years of payments. For every $1,000 borrowed after that, the cancellation comes after an additional year of payments.

For example, a borrower with an original balance of $14,000 would have all remaining debt forgiven after 12 years. Payments made before 2024 count towards a waiver.


The Department of Education says it will notify borrowers when the new application process starts this summer. Those enrolled in an existing plan known as REPAYE will automatically be moved to the SAVE plan. Borrowers can also apply by contacting their loan managers directly.

It will be available to all borrowers in the Direct Loan Program who are in good standing on their loans.


Supporters say Biden’s plan will simplify repayment options and bring relief to millions of borrowers. The Biden administration has argued that rising student debt is making college out of reach for too many Americans and holding back borrowers financially.

Opponents call it an unfair advantage for those who don’t need it, saying it passes a heavy price on taxpayers who have already repaid their student loans or have not attended college. Some worry that it will give colleges an incentive to raise tuition prices, knowing that many students will later lose their loans.

Voices across the political spectrum have said it amounts to a form of free college. Biden campaigned with a pledge to make community college free, but received no backing from Congress. Critics say the new plan is an attempt to do something similar without Congressional approval.


That depends on who you ask, but the question has not been dealt with in a federal court.

Instead of crafting an entirely new payment plan, the Biden administration proposed changes to an existing plan. It reinforced those changes by going through a negotiated regulatory process that allows the education department to develop federal regulations without Congress.

It is a process commonly used by administrations of both political parties. But critics question whether the new plan goes further than the law allows.

More than 60 Republican lawmakers urged Secretary of Education Miguel Cardona to withdraw the plan in February, calling it “reckless, fiscally irresponsible and blatantly illegal.”

Supporters argue that the Obama administration similarly used its authority to create a repayment plan more generous than any other at the time.

The Biden administration formally finalized the rule this month. Conservatives believe it’s vulnerable to a legal challenge, and some say it’s simply a matter of finding a plaintiff with the legal right — or standing — to sue.


The Associated Press education team is supported by the Carnegie Corporation of New York. The AP is solely responsible for all content.

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