Student loan repayment has begun, and with the current economy many borrowers are struggling to manage their monthly payments into their budgets. The Biden Administration announced that forgiveness opportunities under phase 2 of the SAVE Plan will go into effect beginning in February 2024 – which means many borrowers may see benefits before July 1, 2024. And yes, these fast-tracked benefits could mean student loan forgiveness for some borrowers. Here’s what you need to know about the accelerated benefits being offered in the SAVE Plan.
What is the SAVE Repayment Plan?
The SAVE Plan (Saving on a Valuable Education) is the latest income-driven repayment plan offered in the federal student loan program, which replaced the REPAYE Plan. Like all income driven repayment plan, monthly payments are based on your income. The main difference between the SAVE Plan when compared to the other existing and remaining plans—it’s expected to be the least expensive—monthly, and overall—for most federal student loan borrowers. Not only does the plan have a method to offer an interest subsidy, if you are making your payments, but the plan offers a more generous forgiveness opportunity after a certain number of years in repayment, based on your original principal loan balance.
The U.S. Department of Education announced that the SAVE Plan would be implemented in two separate phases. The first phase was implemented as soon as federal student loan re-entered repayment in 2023. The second phase, which includes the opportunity for a lower monthly payment, and faster forgiveness for some borrowers is set to begin on July 1, 2024. However, President Bident announced that the forgiveness opportunity will be fast-tracked.
Fast-Tracked SAVE Plan Student Loan Forgiveness
The Biden Administration announced that student loan forgiveness under the SAVE Plan will be made available to borrowers beginning in February 2024—months ahead of the original July 2024 release. This early implementation is expected to discharge $1.2 billion in loans for approximately 153,000 borrowers.
Who Benefits from SAVE Plan Forgiveness
Borrowers repaying their loans under the SAVE Plan will benefit from this forgiveness opportunity. However, for borrowers who have already been in repayment for several years, this may offer a benefit sooner rather than later. Borrowers will still need to meet the requirements under the SAVE Plan, however, payments made before entering the plan will likely count towards forgiveness. In addition, the months spent in COVID-19 pandemic relief, will also count as eligible payments towards forgiveness.
SAVE Plan Forgiveness
Any borrower who originally borrowed $12,000 or less, who enters the SAVE Plan and has made at least 10 years of payments, will be eligible for forgiveness of their outstanding debt. For some borrowers, this forgiveness will be automatic if you are repaying under the plan.
For borrowers who originally borrowed more than $12,000, forgiveness is still an opportunity, however it may take more time in repayment before the benefit is achieved. For every additional $1,000, your repayment period will increase by one year. There is a maximum time limit in repayment. If you only have undergraduate loans, your repayment term will not exceed 20 years. If you have undergraduate and graduate loans, your repayment term will not exceed 25 years.
What You Should Do Now
If you believe you qualify, you should take the steps to ensure you are eligible. While this is a new forgiveness opportunity, there is no deadline. However, if you’ve already made your required payments and take your time, you will be making payments on a debt that may be eligible for forgiveness.
- FFEL Borrowers: If you have a FFEL loan, you are not eligible to repay under the SAVE Plan unless you consolidated with a Direct Consolidation Loan. Once you consolidate, your Servicer (the company establishing your online portal and sending you information) and the U.S. Department of Education will review your account. If you have met the minimum criteria, you will be eligible for automatic forgiveness. **If you have a Parent PLUS Loan, check out the last bullet.
- Direct Loan Borrowers: You need to be enrolled in the SAVE Plan to be eligible for forgiveness. If you are not enrolled, you can complete an application at: https://studentaid.gov/idr/
- **Borrowers with Parent PLUS Loans: Parent PLUS loans are tricky. They are typically not eligible for any income-driven repayment plan, including the SAVE Plan. In addition, if you consolidated your loans and your Direct Consolidation Loan includes a Parent PLUS Loan, your loan may also be ineligible. At this time, using the “double consolidation” method will still work, but only until July 1, 2025.
Borrowers Enrolled in the SAVE Plan
Keep an eye on your student loan payments. You should have a counter for IDR forgiveness, and if it’s not available you can reach out to your student loan servicer. If you are eligible for the forgiveness, it will occur automatically.
If you do not receive forgiveness automatically, you may not meet the minimum requirements for immediate forgiveness, i.e., originally borrowing only $12,000. It may require you to make additional payments before you achieve eligibility.
Will My Forgiven Student Loan be Taxed?
As of today, no. If you receive forgiveness or any student loan discharge/cancellation through Dec. 31, 2025, the forgiven amounts will not be taxable. However, after that date we are not sure yet. While the law only lasts through the end of 2025, Congress will have the option to extend it.
My Federal Student Loan is in Default, Do I Qualify?
While your federal student loan is in default, you do not qualify. However, you have a unique opportunity to get your loan out of default easily through the U.S. Department of Education’s Fresh Start initiative. Once your loan is back in good standing, you will regain all the federal benefits offered in the federal student loan program. This benefit will be an opportunity to return your loan to good standing, which will be available at least through September 2024. Even though you have a little bit of time, there really is no reason to wait.
Is This Too Good to Be True?
If you have been receiving the calls/texts/emails to “eliminate” your student loan debt, it may seem like this is too good to be true. Unlike those scam calls, this is a real benefit offered by the federal government. If you are enrolled in the SAVE Plan, your payments will be tracked and your eligibility for forgiveness will be monitored.
If your loan balance disappears, it could be due to the this SAVE Plan update and it could also be due to the one-time IDR adjustment offered by the U.S. Department of Education. If your loan balance is reduced or eliminated, in your actual federal student loan account, chances are it was not a mistake.
If you have any questions, you should always reach out to a free and trusted resource who can help you—like your student loan servicer or the U.S. Department of Education. There are a lot of policy changes happening, so you may need to practice patience. If there is an option to email your student loan servicer, that may be a good place to start.
Will There Be Legal Challenges?
Yes. The Biden administration is going to face legal challenges with any type of forgiveness opportunities they present. With the overturning of the Biden Student Loan Forgiveness Plan in the Supreme Court, many stakeholders are keeping a close eye.
Last week, Kansas Attorney General Kris Kobach is going to file a lawsuit by the end of March which challenged the SAVE Plan and its generous forgiveness opportunity. He argues that the SAVE plan offers forgiveness which will be at the expense of taxpayers, and the Supreme Court made it clear that only Congress can authorize these types of opportunities. In addition, he identifies an issue with the “major questions doctrine,” arguing that if it’s a question of forgiving $138 billion in student loans, Congress must explicitly grant that authority to the executive branch.