It’s September, and millions of Americans have re-started repaying their federal student loans. But while facing this added financial burden a wave of positive news is already reaching borrowers’ ears.
Thanks to recent updates by the U.S. Department of Education, thousands of Americans are witnessing their loan balances being wiped clean.
The U.S. Department of Education began forgiving $39 billion in student debt for over 800,000 borrowers who had enrolled in income-driven repayment plans and had consistently made monthly payments for at least two decades.
Initiated by the Biden administration in April of last year, this effort aims to rectify administrative errors that had inadvertently subjected borrowers to repayment obligations when their balances should have been reduced to zero.
Addressing this issue, President Joe Biden stated, “Because of errors and administrative failures of the student loan system that started long before I took office, over 804,000 borrowers never got the credit they earned and never saw the forgiveness they were promised — even after making payments for decades.”
This debt relief is arriving just as federal loan payments are set to recommence after more than three years of suspension due to the COVID-19 pandemic.
Of the 600,000 borrowers to benefit, a significant number will see their federal student loan debt fully eradicated. Data from the Education Department reveals that residents of Texas, Florida and California are set to gain the most from these adjustments, accounting for over $9 billion of the $39 billion earmarked for forgiveness.
As borrowers gear up for the resumption of loan payments, they have a range of options available to them. A popular choice is to determine eligibility for Biden’s novel income-driven repayment program, known as the SAVE plan. This new IDR plan is designed to replace the prior IDRs, which the Biden administration frequently characterized as being flawed.
Under the SAVE plan, monthly undergraduate loan payments will be scaled down to 5% of the borrower’s discretionary income, a notable reduction from the current 10%. Furthermore, individual borrowers earning up to 225% of the federal poverty line, approximately $32,800, could potentially qualify for monthly payments as low as $0.
The SAVE plan shortens the duration of qualifying payments necessary to achieve forgiveness of any remaining balance to as few as 10 years, a significant drop from the current maximum of 25 years.