What You Should Know About the New Student Loan Income-Driven Forgiveness Plan

The landscape of student loans has recently undergone significant developments, with President Joe Biden’s original student loan forgiveness plan facing legal challenges. However, the White House is not giving up on their fight to help the over 40 million people in the U.S. with student loan debt. Let’s explore the current state of student loans, including the Supreme Court’s ruling, the Biden administration’s new initiatives, and potential avenues for borrowers seeking debt relief.

The Supreme Court’s Decision

The Supreme Court struck down President Biden’s student loan forgiveness plan, ruling that it exceeded his executive powers. The plan aimed to cancel up to $10,000 in federal student loans per borrower for borrowers with incomes below $125,000 or couples earning less than $250,000 annually. Borrowers who received Pell Grants would have been eligible for up to as much as $20,000 in forgiveness. When the plan was announced, borrowers were thrilled. However, things quickly changed. The initiative had the potential to alleviate approximately $441 billion in outstanding student debt. However, the Court concluded that Biden had overstepped his authority when announcing the plan, based on the Higher Education Relief Opportunities for Students (HEROES) Act of 2003.

The Biden Administration’s Response

However, there is some positive news for  borrowers in that The White House is working on a new loan forgiveness plan under the Higher Education Act of 1965 (HEA), which grants the Department of Education the authority to “compromise, waive or release loans.” The proposed rule focuses on income-driven repayment plans and could help over 800,000 borrowers even more than Biden’s original plan.

One such plan is the Saving on a Valuable Education (SAVE) plan, which could potentially reduce borrowers’ monthly payments to zero or cut them in half. The administration also introduces the “on-ramp” repayment program to prevent vulnerable borrowers from facing negative consequences for missing payments.

This new plan could be a game changer for not only the borrowers but their parents as well. Credello recently ran a survey of 600 parents who helped pay their children’s student loan payments either partially or completely and found that 42% of them revealed that paying their children’s student loans or funding their tuition made saving difficult, 51% said it decreased their disposable income, and 38% said it increased their stress levels.

Qualification and Options for Borrowers

It is important to note that these relief programs primarily apply to federal student loans. If you have private student loans, you likely will not qualify for any federal repayment programs. However, you can explore other options to manage your debt effectively. If you do have private loans that have high interest rates, you can look into refinancing your loans, which might give you a lower interest rate and help reduce your monthly payments.

Looking Ahead

While the Biden administration’s efforts to provide relief are commendable, we have to acknowledge that the path to comprehensive student loan reform will take time – more time than we have. The proposed rulemaking process and implementation of new repayment programs will require careful consideration and evaluation. As borrowers await further developments, staying informed about potential updates and taking advantage of available resources to manage student loan debt effectively is essential.

Bottom line

Although the Supreme Court’s recent decision was not surprising, it is devastating for tens of millions of borrowers nationwide. It’s somewhat comforting that the Biden Administration is still hopeful that student loan relief might be possible, but borrowers should not depend on it. Borrowers should stay up to date on repayment dates and contact their lenders as quickly as possible to work out a plan. As long as you’re in communication with your lender regarding your situation, you can likely work out a payment plan that benefits you.