Biden Administration’s SAVE Plan: What You Need to Know

Student Loans

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The Summary

What exactly does the Department of Education’s newly released plan for student loan repayment mean for borrowers, and will it stand in the face of further legal challenges?

What exactly does the Department of Education’s newly released plan for student loan repayment mean for borrowers, and will it stand in the face of further legal challenges?

The Biden administration announced on February 21, 2024, that it would be offering complete student loan forgiveness for around 153,000 borrowers. Those qualifying for complete forgiveness must have met three criteria: (1) originally borrowed $12,000 or less, (2) made payments for at least ten years, and (3) are currently enrolled in the administration’s SAVE Plan (source). 

Launched in August 2023, the SAVE Plan is an income-driven repayment plan (IDR) which caps monthly repayments at 5% of borrowers’ discretionary income, total income minus income taxes. The plan includes monthly payments as low as $0 for individuals who make less than $32,800 annually, or families who make less than $67,500. After 10 to 20 years enrolled in the program, depending on the amount originally owed, any outstanding debt is forgiven. There are currently 7.5 million Americans enrolled in SAVE, with 4.3 million qualifying for $0 monthly payments (source). In contrast, 10.5 million Americans are enrolled in the standard repayment plan, which requires borrowers to pay the full amount borrowed plus interest through set monthly payments for ten years (source). The average monthly payment under the standard plan is between $200-299 (source).

The SAVE plan was created after a 2023 Supreme Court ruling that struck down the administration’s broad debt forgiveness plan. The program would have canceled up to $20,000 in federal student loans for approximately 43 million Americans via executive order (source). Education Secretary Miguel Cardona and supporters of SAVE argue that it addresses the Supreme Court’s concerns in their initial rejection of loan forgiveness (source). Opponents to the SAVE plan, including The Wall Street Journal’s Editorial Board, argue that SAVE is an attempt by the Biden administration to bypass the Court’s decision. 

Additional questions have circulated over who the SAVE plan will actually impact. While the Biden administration highlights the targeted relief to Americans and their families, conservative lawmakers, such as Senator Bill Cassidy (R-LA), worry that “[the SAVE plan] transfers the burden of…federal student loans from those who willingly took out the loans onto Americans who chose to not go to college or already sacrificed to pay off their loans” (source). Another common concern regarding the SAVE plan is that it does nothing to address steep tuition increases. Since 1979, there has been a 159% increase in tuition at public colleges, with the average student paying $21,370 per year (source). If universities expect the federal government to pick up the tab with future debt relief,  they might be less motivated to moderate tuition increases. In response, Secretary Cardona noted that the administration was putting pressure on colleges to lower the costs of tuition and fees by pushing “accountability on colleges and making sure that the return on investment is clear,” so students can make smart decisions about their higher education (source).

Compared to Biden’s original overarching program, which would have totalled up to $400 billion in total loan forgiveness, the new updates to SAVE total just $1.2 billion in cancellations. Some worry that SAVE’s numbers fall flat of Biden’s campaign promises of comprehensive student loan overhauls (source). The administration has responded to these concerns by emphasizing the SAVE plan’s focus on bringing aid to those who need it most as detailed on the chart below. Alongside the plan’s existing $0 monthly payments for qualifying borrowers, the administration plans to make further cuts to payments for non-qualifying borrowers beginning in July 2024 (source).  

Source: Board of Governors of the Federal Reserve System, May 2022. .While this graph shows outstanding debt, Biden’s plan will only relieve debt for those who originally took out $12,000 or less. Individuals who are low income tend to have disproportionately higher balances.

A week after the Biden administration announced their updates to SAVE, Kansas Attorney General Kris Kobach reported that he would be pursuing a legal challenge against the plan. Kansas was part of the coalition of states which successfully petitioned the Supreme Court in 2023 to strike down Biden’s executive action forgiveness plan. Kobach argued that SAVE exceeds the scope of Biden’s presidential authority and unfairly burdens taxpayers with the cost of subsidizing student loans. The lawsuit is expected to be brought at the end of March, with Kansas filing alongside several other as-of-yet unannounced states. A spokesperson for the Education Department called Kobach’s plan “yet another attempt by Republican elected officials to prevent their own constituents from the student debt relief they earned and are entitled to” (source). 

Regardless of the legal resolution to the Kansas case, it seems doubtful that comprehensive student loan forgiveness will be put into place without passing both chambers of Congress first. However, if the SAVE plan does traverse the rungs of the judicial system and arrive back at the hands of the Supreme Court as some expect, the resulting decision could have major implications on the ability of the Biden administration to enact his student loan agenda.

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