Forgiveness is coming soon for some federal student loan borrowers.
If you have a Savings for Value Education repayment plan, originally borrowed $12,000 or less and have been paying for at least 10 years, you will be eligible to have all arrears forgiven, which was a provision originally planned to be introduced. this summer.
However, according to the Department of Education, these eligible borrowers will have their debt forgiven in February. Borrowers will not need to take any further action, says ED.
“This is one of a number of strategies that (the Biden-Harris administration) is doing to make higher education more accessible and affordable,” Education Secretary Miguel Cardona told CNBC Make It. “(We want to) address some of the disparities we’ve found in college loan processing and instill confidence in borrowers.”
As part of an enhancement to income-driven repayment plans, borrowers with the SAVE plan are eligible to have their remaining balances forgiven after just 10 years of payments. That’s less than the minimum 20-year repayment period before forgiveness for older IDR plans.
Those who originally borrowed up to $21,000 can have their debt forgiven early under the SAVE plan. They must pay an additional year for every $1,000 borrowed above the $12,000 threshold before their loans are forgiven.
So if you took out $15,000 in loans, the balance could be forgiven in 13 years on the SAVE plan, rather than 20 years for college students with higher starting balances.
“We realize that for those who take out subprime loans, a lot of those people end up without an education and with debt that they can’t handle, and they’re low-income people,” Cardona says. “This is a subgroup that is really negatively affected by the current system, so we wanted to focus our support on those with low debt.”
Borrowers who are already enrolled in the SAVE program and meet the criteria for forgiveness will be notified by email in February and “will have their debts canceled immediately,” according to ED.
Those who would be eligible for forgiveness but have not yet enrolled in the SAVE program are encouraged to enroll as soon as possible to receive relief when it is launched.
In February, “the department will also email borrowers not on SAVE who can receive forgiveness once they enroll in the plan,” ED said in a statement.
More SAVE relief to come
Even borrowers who won’t qualify for debt forgiveness right away will benefit from enrolling in the SAVE plan.
As of early January, 6.9 million borrowers had signed up for the SAVE plan, with 3.9 million qualifying for $0 monthly payments, the Biden administration said.
Among those who owe monthly payments, they save an average of $117 per month on the SAVE plan, not including interest that is eliminated when it exceeds a borrower’s monthly payment.
This summer, the SAVE payment plan will become even more affordable as the calculation will drop from 10% of the borrower’s discretionary income to 5%. This could be great news for borrowers whose income currently makes their monthly payments on SAVE higher than on other plans, such as the Standard Repayment Plan.
“I want people to know (it takes) 10 minutes to fill out the SAVE plan (application) and you could get an email as early as February saying your debt is cleared,” Cardona says. “We’re moving as fast as we can.
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