As Biden’s presidency comes to an end, millions of Americans are asking what will happen to their student loan debt.
The administration attempted and failed to execute various policies aimed at reducing debt for those with federal loans, but with the majority of the measures mired in legal procedures, many are wondering what options are there to pay off the debt faster or get it erased.
The Saving on a Valuable Education (SAVE) plan has been the most disputed, as it would have reduced monthly payments and eliminated exorbitant loan rates for millions of debtors.
It would also have provided full student loan forgiveness after 10 to 25 years of payments, which disappointed many conservative legislators and political officials.
However, other initiatives, such as Pay-As-You-Earn (PAYE) and Income-Contingent Repayment (ICR), were deemed obsolete. These are now back in open enrollment, and the Department of Education (DOE) is pushing borrowers to join up for both options.
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek. “PAYE and ICR programs existed previous to the Biden Administration’s introduction of SAVE, but they were eventually integrated under the SAVE banner.
With the SAVE plan temporarily suspended as it works its way through the judicial system, the administration intends to reinstate 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 saving and is now diverted through other initiatives.
“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 dispute is ongoing.
The interim final rule guarantees that the Department may fulfill its statutory commitment under the Higher Education Act to allow borrowers to make payments under an income-contingent repayment plan.
This is accomplished through a stopgap solution that allows borrowers to participate in two different repayment plans: Income Contingent Repayment (ICR) and Pay As You Earn (PAYE). We will give additional information whenever 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 offered 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 down their debts or moving closer to Student Loan Forgiveness.
The future of Student Loan repayment
Many people elected to take advantage of the Income-Based Repayment (IBR) plan once SAVE was suspended because it was the only alternative repayment option available.
The IBR also considers borrowers’ income and family size, allowing some to attain debt forgiveness after 20 or 25 years, but with higher interest rates and higher costs for debtors. 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 specialist and the founder and CEO of 9i Capital Group, concurred with the optimistic 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 imbalances 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 bring respite to debtors, but how long that relief will endure remains to be seen.
Those with loans can begin taking advantage of the two new choices in 30 days, starting in mid-December.
