Starting September 1, 2023, federal student loans will begin accruing interest again. And loan payments will officially restart in October 2023.
As part of federal relief measures during the COVID-19 pandemic, individuals with federal student loan debt weren’t required to make payments, and interest charges were suspended. Those relief measures have been in place since March 20, 2020. If borrowers made payments during this period, the amounts paid went directly toward principal, not interest.
Since taking office, President Biden has tried to implement additional relief measures for federal student loan borrowers. On June 30, 2023, the U.S. Supreme Court struck down Biden’s proposed student loan forgiveness program. This program would have canceled up to $20,000 of debt for approximately 43 million eligible borrowers. The majority opinion found the forgiveness program exceeded the legal authority of the U.S. Department of Education (DOE).
The Biden administration is still trying to find ways to help student loan borrowers. Here’s an overview of his latest proposal and other programs that may provide relief to certain individuals with federal student loans.
The SAVE Plan
President Biden’s latest relief measure is the Saving on a Valuable Education (SAVE) plan. On July 14, 2023, the DOE reported that the SAVE plan would go into effect immediately and replace the existing Revised Pay as You Earn (REPAYE) plan. These programs target income-driven repayment (IDR) programs, which make student loan debt more manageable by basing the monthly payment on income and family size. It’s estimated that the SAVE Plan will provide relief to more than 804,000 borrowers with $39 billion in debt.
Eligible individuals hold Direct or Federal Family Education loans (FFEL) issued by the DOE, including Parent PLUS loans. They must have hit the necessary forgiveness threshold upon receiving IDR credit during any of the following periods:
- Any month of active repayment, partial or late, no matter what loan type or term,
- 12 or more consecutive months of lender-approved loan payment reductions or suspensions,
- 36 or more consecutive months of paused loan payments,
- The months in deferment prior to 2013, not including in-school deferment, and
- Months spent in military deferment or economic hardship on or after January 1, 2013.
The SAVE plan is expected to face legal challenges and could take several months to even years before the details are locked in. In the meantime, the following provisions of the SAVE plan are expected to go into effect in 2023:
More income protection. The SAVE plan limits monthly payments to a percentage of discretionary income, presently 10%. Discretionary income is defined as the difference between your adjusted gross income and 150% of the federal poverty guidelines (about $21,870 per individual for 2023) under the REPAYE plan. That threshold will increase to 225% of the poverty line (about $32,800 per individual) under the SAVE plan. So, essentially any borrower who’s earning less than $15 per hour for a full-time position could qualify for a $0 monthly payment under the SAVE plan.
Cap on interest payments. The SAVE plan eliminates interest that exceeds the monthly payment. For example, if a loan accrues $50 of interest per month and the monthly payment is $30, the remaining $20 of interest won’t be charged, according to the DOE.
No co-signer for married borrowers. You can apply for the SAVE plan without having your spouse co-sign. The REPAYE plan currently requires married borrowers to report their spouse’s income, even if they file taxes jointly.
You’ll be automatically enrolled in the SAVE plan if you are currently on the REPAYE program. If you wish to apply for an IDR, visit the Federal Student Aid website.
The SAVE plan is expected to bring additional relief to eligible borrowers in 2024. These changes include smaller monthly payments, a faster track for loan forgiveness, deferment and forbearance support, and automatic enrollment.
Other IDR Options
If you don’t qualify for the SAVE plan but want to relax the repayment terms for your student loans, first contact your lender to discuss a new plan. Besides the SAVE plan, other existing IDR options for federal student loans include:
Pay as you earn (PAYE). A PAYE plan decreases the monthly payment to 10% of your discretionary income and extends the term to 20 years.
Income-based payment plan. This type of plan decreases the monthly payment to 10% or 15% of discretionary income, depending on when you took out the loans, and extends the term up to 25 years.
Income-contingent repayment plan. This decreases the monthly payment to the lesser of 20% of discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years. It also extends the term to 25 years.
Graduated payment plan. With this plan, payments start small and increase every two years over 10 years. If loans are consolidated, they can last as long as 30 years.
Consolidation loan payment plan. By consolidating federal loans, you may be eligible to extend the repayment plan as much as 30 years.
These programs don’t apply to private student loans. If you’re having trouble making payments on private student loans, discuss repayment options with your lender.