Student Loan Payments to Get Cut in Half in July

Millions of Americans will see their student debt payments slashed beginning in July.

After President Joe Biden passed his new income-driven repayment plan, Saving on a Valuable Education (SAVE), at least 7.5 million Americans saw lower payments, the Education Department said.

While other income-driven repayment plans look at borrowers’ income and family size, SAVE will see lower payments than traditional plans like Income-Based Repayment and Pay as You Earn.

SAVE lets borrowers earn a higher income exemption before its repayment starts. For many, that will lead to a payment of zero dollars each month. For those who still have to pay, the amount will be based on only 10 percent of each borrower’s discretionary income.

“Just about every federal student loan borrower is eligible for the new SAVE plan,” attorney and Student Loan Sherpa founder Michael Lux told Newsweek. “Some borrowers will have to consolidate their loans to get eligible, so there may be some hoops to jump through, but in most cases it is worth the effort.”

All payments will be determined for a year, and then they can change again depending on the loan holder’s income. And most importantly to many borrowers, after several years, many will be eligible for full student debt forgiveness.

That is the case for either 20 or 25 years of repayments, but Biden has also implemented early student aid forgiveness for some after 10 years.

Beginning July 1, however, even more help from the SAVE plan is coming for borrowers.

Those who have debt only for undergraduate loans could see their payment plan updated to be based on just 5 percent of discretionary instead of the prior 10 percent. If you have graduate school debt, however, the amount will stay at 10 percent, with those who have both somewhere in the middle of the two figures.

“When you combine the lower payments on SAVE with the generous SAVE subsidy and the earlier forgiveness provisions of SAVE, it becomes clear that SAVE is the best repayment plan for most federal borrowers,” Lux said.

Once the new rules come to fruition, borrowers under the SAVE plan making $70,000 would see payments of $310 go down to $155 monthly. That slashes the amount owed each month in half, giving borrowers a higher amount of spending money as they navigate inflation and economic uncertainty.

“It’s a game changer,” Alex Beene, financial literacy instructor for the state of Tennessee, told Newsweek. “Many students are now able to see a more affordable path forward for their loans. Past repayment plans gobbled up huge sums of someone’s take-home pay, money that gets hard to allocate due to rising expenses. This makes student debt dramatically more repayable to millions of additional Americans.”

Still, some things are up in the air for Biden and his newly offered SAVE plan.

The plan is already receiving criticism, including from the Kansas Attorney General Kris Kobach, who said he plans to sue the Education Department over the new loan forgiveness options.

In recent months, Biden also approved $5 billion more in federal student loan forgiveness to those who have worked 10 years or more in public service and people repaying their loans for at least 20 years who haven’t been able to get help through income-based plans.

Altogether, 74,000 more borrowers will see relief.

Biden’s prior plan to cancel student loan debt was found in violation by the U.S. Supreme Court in June. If still in effect, his plans would have seen forgiveness for up to $10,000 in debt for those making less than $125,000 a year.

Nationally, more than 3.7 million Americans have seen student debt forgiveness, which was a promise Biden made when he took office.

“From day one of my administration, I vowed to improve the student loan system so that a higher education provides Americans with opportunity and prosperity—not unmanageable burdens of student loan debt,” Biden said in a statement. “I won’t back down from using every tool at our disposal to get student loan borrowers the relief they need to reach their dreams.”