As Biden’s presidency comes to an end, millions of Americans are wondering what will happen to their student loan debt. The administration attempted and failed to implement numerous policies aimed at reducing debt for those with federal loans, but with the majority of the initiatives mired in court proceedings, many are wondering what options are left to pay down the debt faster or have it waived.
The Saving on a Valuable Education (SAVE) plan has been the most challenged, as it would have reduced monthly payments and eliminated high interest rates for millions of borrowers.
It would also have provided full student loan forgiveness after 10 to 25 years of payments, which disappointed many conservative politicians and elected officials.
However, some measures, such as Pay-As-You-Earn (PAYE) and Income-Contingent Repayment (ICR), were made obsolete. These are now back in open enrollment, and the Department of Education (DOE) is encouraging borrowers to sign up for both plans.
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek. “PAYE and ICR plans existed prior to the Biden Administration’s introduction of SAVE, but they were eventually combined under the SAVE umbrella.
With the SAVE plan currently suspended as it works its way through the court system, the administration intends to reintroduce those previous plans in order to assist students who would have qualified for them.”
The DOE also made statements regarding their $175 billion in student loan forgiveness, which would have been provided through save and is now funneled through other plans.
“As the Department defends the SAVE plan in court, it is taking steps to ensure that borrowers, particularly those seeking Public Service Loan Forgiveness, have repayment options while the litigation is ongoing.
The interim final rule ensures that the Department can fulfill its statutory obligation under the Higher Education Act to allow borrowers to make payments under an income-contingent repayment plan.
This is accomplished through a stopgap measure that allows borrowers to enroll in two other repayment plans: Income Contingent Repayment (ICR) and Pay As You Earn (PAYE). We will provide additional information once the Department is ready to begin enrolling new borrowers in these plans.”
This is because, when the 8th Circuit Court of Appeals put the SAVE plan on hold in August, borrowers who qualified were given the option of also putting their repayments on hold.
This meant that they had no payments due and no interest accrued, but they also couldn’t work toward paying off their loans or moving closer to Student Loan Forgiveness.
The future of Student Loan repayment
Many people chose to take advantage of the Income-Based Repayment (IBR) plan after SAVE was paused because it was the only other repayment option available.
The IBR also considers borrowers’ income and family size, allowing some to achieve debt forgiveness after 20 or 25 years, but with higher interest rates and higher costs for borrowers. This will all change with the implementation of PAYE and ICR.
According to Michael Lux, an attorney and founder of the Student Loan Sherpa, “For borrowers who are eligible for PAYE but not IBR for new borrowers, this is a big development and an opportunity to potentially lower their monthly bill and start making progress toward forgiveness.”
Kevin Thompson, a finance expert and the founder and CEO of 9i Capital Group, agreed with the enthusiastic take: “With long-term interest rates still high, borrowers making only minimum payments are finding it increasingly difficult to stay afloat.” Reopening these programs addresses inequities in the student loan system and provides much-needed relief.”
However, Beene tempers this enthusiasm, stating that “the Trump administration has opposed most efforts for similar programs.” The reintroduction will provide relief to borrowers, but how long that relief will last remains to be seen.
Those with loans can begin taking advantage of the two new options in 30 days, starting in mid-December.
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