Some federal student loan borrowers can expect to have their remaining debts erased six months earlier than they would have been, the U.S. Department of Education said Friday.
This accelerated debt cancellation, previously scheduled for this July, applies to borrowers who originally took out less than $12,000 in loans and have been actively repaying for at least 10 years, as long as they first enrolled in President Joe Biden’s generous income-driven repayment (IDR) plan, known as SAVE.
“Borrowers enrolled in SAVE who are eligible for early forgiveness will have their debts canceled immediately starting next month, with no action on their part,” the Education Department said in a notice.
Under a traditional IDR plan, The borrowers may be eligible to have any remaining balance canceled after a certain amount of time in repayment, typically after 20 years for those with undergraduate student loans and 25 years for those with graduate school loans. But SAVE can make the eventual debt cancellation happen even faster for undergraduate borrowers who started with relatively low balances.
“For every $1,000 borrowed above $12,000, a borrower can receive debt discharge after an additional year of payments,” the Education Department explained. For example, those who had an original principal balance of $13,000 can now have their remaining balance wiped out if they’ve been in repayment for 11 years.
“This means a borrower who originally borrowed less than $21,000 will be eligible for forgiveness faster than the 20-year timeline for undergraduate borrowers on SAVE.”
“The benefit is based upon the original principal balance of all federal loans borrowed to attend school, not what a borrower currently owes or the amount of an individual loan,” the department reiterated.
The shorter time to debt cancellation, according to U.S. Secretary of Education Miguel Cardona, is particularly good news for Americans who took loans to attend community colleges since they typically borrow smaller amounts.
“Overall, the Department estimates that the SAVE Plan will make 85 percent of future community college borrowers debt-free within 10 years,” said Mr. Cardona, who has been encouraging federal student loan borrowers to take advantage of SAVE since last summer, when the U.S. Supreme Court torpedoed his plan to offer a blanket cancellation of an estimated $400 billion in debts.
“Today’s announcement gives borrowers an even greater reason to check out the SAVE plan and find out if they may qualify for earlier debt relief,” he said.
It’s not immediately clear how many people will have their debt wiped out through the initiative or what the total amount of debt canceled will be.
The initiative was met with fierce criticism from Republican lawmakers, who accused the Biden administration of implementing student loan debt cancellation without the approval of Congress.
Rep. Virginia Foxx (R-N.C.), chairwoman of the House’s education committee, described the move as President Biden’s attempt to please voters.
“President Biden is downright desperate to buy votes before the election—so much so that he greenlights the Department of Education to dump even more kerosene on an already raging student debt fire,” the congresswoman said in a statement on Friday. “It would surprise no one if the Department relied on infants playing with abacuses to balance its books—it is a complete and utter disaster.”
The SAVE plan is expected to cost billions in taxpayer dollars, a point Republican lawmakers have been emphasizing since its announcement.
“About $200 billion of that cost will come from payment reduction for the $1.64 trillion in loans already outstanding in 2023,” the analysis read.
According to the elite business school, the SAVE plan will incentivize college students to collectively borrow billions more dollars every year in the next decade due to the expectation that they may not have to repay the debt.
“The remainder of the budget cost, or about $275 billion, comes from reduced payments for about $1.03 trillion in new loans that we estimate will be extended over the next 10 years,” it added.
“It’s incredibly unfair to those who never incurred student debt because they didn’t attend college in the first place or because they either worked their way through school or their family pinched pennies and planned for higher education,” said Sen. Bill Cassidy (R-La.), ranking member of Senate’s education committee.
“Our resolution protects the 87 percent of Americans who don’t have student debt and will be forced to shoulder the burden of the President’s irresponsible and unfair policy,” he added.
In defense of the repayment plan, Mr. Cardona implored lawmakers seeking to undo it to speak with borrowers who are “drowning in debt.”
“We’re hearing from the American people who are drowning in debt and can’t buy a home in the economy because of college costs,” he said during a Sept. 8, 2023, interview on CNN. “Those who are vehemently opposed to it have not spoken to their constituents who are drowning, who need support, who need to make higher education more accessible.”
