Explainer: Biden’s SAVE Plan for Student Loan Forgiveness

Policy and LawExplainer
Written By Ashni Mehta

Biden's SAVE plan, introduced in August 2023, offers potential relief to millions of student loan borrowers, reducing some monthly payments to $0 and preventing interest from accumulating. The plan aims to benefit low- and middle-income earners, community college students, and public service workers, with early forgiveness for those with low balances. However, opponents argue it could cost taxpayers up to $559 billion and incentivize colleges to raise tuition costs, prompting some House Republicans to seek its overturning through a Congressional Review Act (CRA) resolution.

Biden’s new student loan repayment plan — known as SAVE — could lower the debts of millions of students. Until now, the Biden Administration has canceled over $116 billion in student loan debt for 3.4 million Americans.   

Opponents of the plan claim that the plan could cost taxpayers up to $559 billion, as well as encourage colleges to raise the cost of tuition and increase excessive borrowing. This is mostly true. 

The plan follows the Supreme Court’s June 30th decision to strike down President Biden’s initial loan forgiveness plan. The SAVE plan is the latest proposal in the Biden Administration’s efforts to make college more affordable by changing the student loan system. The Saving on a Valuable Education (SAVE) plan, which was launched in August 2023, is a new student loan payment plan that could provide much-needed relief to borrowers as they resume payments this October. 

As of September 9th, 2023, more than 4 million borrowers have signed up for the SAVE plan, according to a press release by the White House.

What does the SAVE plan entail?

The SAVE plan is an income-driven repayment (IDR) that could lower some borrowers’ student loan payments to $0 while others could save about $1,000 per year. The plan also prevents borrowers’ balances from accumulating due to past unpaid interest. Further, the Biden administration estimates that borrowers will see their total payments per dollar borrowed fall by 40%. Overall, the SAVE plan will allow borrowers to repay their loans faster than previous loan forgiveness plans.

Fast Facts on the Save Plan

Undergraduate loan payments halved 

Borrowers with undergraduate loan payments will have their monthly payments reduced from 10% to 5% of their discretionary income. Under the previous Revised Pay-As-You-Earn (REPAYE) Plan — which the SAVE plan now replaces — borrowers had to pay 10% of their discretionary income for loan repayment. Those with both undergraduate and graduate loans will pay anywhere between 5% and 10% of their income based on the original balances of their loans. 

$0 loan payments for millions of borrowers

Before the SAVE plan, many borrowers were paying $200 per month towards their loan repayments based on monthly income and family size. Under the SAVE plan, the income exempted from the payment calculation has increased to 225% of the poverty line, compared to 150%. 

As a result, single borrowers earning less than $32,800 per year or a family of four earning less than $67,500 per year will not owe loan payments anymore if they enroll in the SAVE plan. The Department of Education estimates that more than 1 million low-income borrowers will qualify for $0 payments, allowing them to pay for necessities such as food and rent. 

Loans won’t grow due to previous unpaid interest

Under the SAVE plan, borrowers will not have to pay monthly interest if they keep up with their required payment when loan payments resume this October. The Department of Education estimates that 70 percent of borrowers who were on a previous IDR plan will benefit from this change. 

Early loan forgiveness for low-balance borrowers 

Current IDR plans require borrowers to make payments for 20 or 25 years before they receive loan forgiveness. With SAVE, borrowers with original principal balances of $12,000 or less will receive loan forgiveness after 120 payments, equivalent to 10 years in repayment. For each $1,000 borrowed above $12,000, borrowers will have to make an additional 12 payments for up to a maximum of 20 or 25 years of payments before forgiveness.

Who benefits from the SAVE Plan? 

The biggest beneficiaries of the SAVE plan are low- and middle-income earners, community college students, and public service workers.  

Proponents of the plan argue that large-scale debt cancellation could help alleviate racial and socioeconomic inequality, with Black, Hispanic, Native American, and Alaska Native borrowers seeing their total lifetime payments per dollar borrowed reduced by half.

What are opponents of the SAVE plan saying?

Opponents of the SAVE plan worry that it passes on an unfair burden to taxpayers — estimated at $559 billion — many of whom have already repaid their student loans or never went to college. 

The House Committee on Education and the Workforce claims that Biden is “trampling the rule of law, hurting borrowers, and abusing taxpayers to ram through his radical free college agenda.” According to the committee, the SAVE plan will incentivize colleges to increase the cost of education since future borrowers will take on more debt, expecting forgiveness. 

The Penn Wharton Budget Model estimates the SAVE plan will cost taxpayers a minimum of $390.9 billion and a maximum of $558.8 billion, with the median cost being $474.9 billion for the budget window for 2023-2033. 

The House Committee on Education and the Workforce also claims that Biden circumvented Congress when he implemented the SAVE plan, saying, “Congress did not and would not authorize the Secretary to write off half of the $1.6 trillion student loan portfolio with the stroke of a pen.” 

This claim is partially true since the Biden administration amended the REPAYE plan to become the SAVE plan instead of creating a new plan from the ground up. These changes were made possible through a negotiated rulemaking process that allows the Department of Education to develop federal regulations without Congress, and previous administrations of both political parties have used this process.  

Several House Republicans are trying to overturn the SAVE plan, which they call “reckless,” by introducing the Congressional Review Act (CRA) resolution.”

Therefore, the claim that the SAVE plan will cost taxpayers $559 billion and that Biden bypassed Congress to launch the SAVE plan are mostly true.

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Ashni Mehta
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