September 2023 | Volume 15, Issue 2

Watch the full video and find the accompanying article from CBS News.

According to the article, the Biden administration recently launched an application for a new student loan repayment plan as part of its latest attempt to offer relief to borrowers as payments resume despite significant political hurdles. "This plan is a game changer for millions of Americans, many of whom are putting off having children, buying their first home, or even starting a business because they can't get out from under their student loans. Student loans will be manageable," Biden's domestic policy adviser, Neera Tanden, said.

The new plan is part of the administration's continued efforts to tackle student loans after its push to outright cancel up to $20,000 in debt for some borrowers was struck down by the Supreme Court earlier this year.

The SAVE, or Saving on a Valuable Education, plan is an income-driven repayment program that calculates payment size based on income and family size. It allows borrowers who consistently make their monthly payments to see their debt forgiven after a certain number of years.

Starting in July 2024, borrowers approved for a SAVE plan will see their monthly payments slashed in half for undergraduate loans, falling from 10% to 5% of disposable income -- the money left over after paying for necessities like food and rent. For those with both graduate and undergraduate loans, payments would be between 5-10% of their income, weighted based off their initial loan amounts. The administration estimates that this will save the typical borrower about $1,000 a year on their payments.

Borrowers who had $12,000 or less in initial loan amounts will also see their required payment time dramatically reduced, from 20 years to 10 years for undergraduate loans. Those with higher original principle will be required to make an extra year of payments for every additional $1,000 in loans, up to 20 years.

There are elements of the program that will kick in sooner to offer relief to those preparing to resume student loan payments, which were paused for more than three years due to the coronavirus pandemic. Starting this summer, an individual approved for a SAVE plan and making less than $32,805 would see their monthly payment drop to $0 until their income increases. The same is true for a family of four making less than $67,500. The Department of Education will also cap interest accrual for those approved for SAVE -- essentially canceling any interest not covered by their monthly payments to prevent loans from growing. The administration is urging anyone interested in applying for SAVE to do so in the coming days with the expectation that these benefits will kick in when payments resume in October, though no firm date was given. Senior administration officials estimate that servicers will need about four weeks from when an application is received to process it.

In June, the Supreme Court rejected a Biden administration program that would have canceled between $10,000 and $20,000 in federal loans for people making below a certain income. Since then, the White House has sought to tackle the debt in other ways, including by overhauling one of the most popular income-driven repayment programs, REPAYE, to become the new SAVE program. Conservative detractors have called the relief an abuse of taxpayer money. "The Biden administration's blatantly political attempt to circumvent the Supreme Court is shameful. The Biden administration is trampling the rule of law, hurting borrowers, and abusing taxpayers to chase headlines," Republican Rep. Virginia Foxx, who is chairwoman of the House Education and Workforce Committee said in a statement when the policy was announced last month.

Most borrowers are eligible loans for benefits provided by the SAVE plan, including direct subsidized loans, direct unsubsidized loans, and others, according to a Department of Education spokesperson. Some borrowers with older loans will have to first consolidate them into a direct consolidation loan to be eligible for repayment under the SAVE plan, per the spokesperson, and the application will walk borrowers through any actions they need to take to make these loans eligible.

Anyone interested in signing up for a SAVE plan should visit StudentAid.gov/SAVE to fill out the application. Application status should be visible on the account's dashboard once completed. Borrowers who are currently enrolled in the income-driven repayment plan REPAYE will automatically have their monthly payments adjusted to the new SAVE plan before payments restart in October. The administration estimates more than 20 million student borrowers could benefit from SAVE, which will particularly benefit low- and middle-income families struggling to dig out from debt.

Discussion Questions

  1. Based on the video, what was the justification for striking down President Joe Biden’s original student loan forgiveness program?
    As the video indicates, a majority of the U.S. Supreme Court held that President Biden overstepped his authority as president in attempting to forgive approximately $400 billion in student debt. The Court opined that such authority, if it is to be exercised, should be the authority of the legislative branch (the U.S. Congress) of government. In your author’s estimation, this represents a classic “tug-of-war” between the legislative and executive branches of government in terms of the balance of power, with the U.S. Supreme Court serving as the arbiter in the dispute.
  2. Explain the details of the Saving on a Valuable Education (SAVE) program.
    As indicated in the article:
    “The SAVE, or Saving on a Valuable Education, plan is an income-driven repayment program that calculates payment size based on income and family size. It allows borrowers who consistently make their monthly payments to see their debt forgiven after a certain number of years. Starting in July 2024, borrowers approved for a SAVE plan will see their monthly payments slashed in half for undergraduate loans, falling from 10% to 5% of disposable income -- the money left over after paying for necessities like food and rent. For those with both graduate and undergraduate loans, payments would be between 5-10% of their income, weighted based off their initial loan amounts. The administration estimates that this will save the typical borrower about $1,000 a year on their payments. Borrowers who had $12,000 or less in initial loan amounts will also see their required payment time dramatically reduced, from 20 years to 10 years for undergraduate loans. Those with higher original principle will be required to make an extra year of payments for every additional $1,000 in loans, up to 20 years. There are elements of the program that will kick in sooner to offer relief to those preparing to resume student loan payments, which were paused for more than three years due to the coronavirus pandemic. Starting this summer, an individual approved for a SAVE plan and making less than $32,805 would see their monthly payment drop to $0 until their income increases. The same is true for a family of four making less than $67,500. The Department of Education will also cap interest accrual for those approved for SAVE -- essentially canceling any interest not covered by their monthly payments to prevent loans from growing.”
  3. In your opinion, is the issue of student loan forgiveness best addressed by the legislative (U.S. Congress), the executive (U.S. president), or the judicial branch (U.S. federal court system) of government? Explain your response.
    This is an opinion question, so student responses may vary. In your author’s opinion, student loan forgiveness would be best addressed by the legislative (U.S. Congress) branch of government. However, this presupposes that a functional (i.e., law-making) Congress would be able to address the issue. In recent years, across Democratic and Republican administrations, the sitting president has perceived the need to act (for example, by executive order) in situations where Congress has created a “power vacuum” (with “vacuum” being defined as a space entirely void of matter) due to its inability or refusal to act on pressing policy matters (for example, immigration and health care).