In the wake of the Supreme Court’s rejection of President Biden’s debt cancellation proposal in June of this year, the Biden administration has introduced a new student loan repayment plan called SAVE (Saving on a Valuable Education), which officially became open for enrollment on August 22.

Background

Since the onset of the COVID-19 pandemic in March 2020, student loan repayments have been temporarily paused. However, this fall, this pause is coming to an end, with interest beginning to accrue in September, followed by the resumption of monthly payments in October. In June 2023, the Biden administration had proposed a debt cancellation plan aiming to forgive up to $20,000 in student loan debts for borrowers. Despite protests outside the Supreme Court advocating for debt forgiveness, the Supreme Court blocked this initiative on June 30th, arguing that it constituted a reworking of the law without congressional support rather than a modification of an existing program. As a result, SAVE, a revision of REPAYE (Revised Pay as You Earn), has been introduced as an alternative.

Key Features of SAVE

SAVE, much like REPAYE, operates as an income-driven repayment plan. These income-driven programs calculate repayment amounts based on the borrower’s income and household size. While it is still early to assess its full impact, SAVE presents some promising elements. One notable feature is “Fresh Start,” a provision that removes borrowers from default and delinquency status, considering them up to date on their payments. This provision also takes into account the years during which repayment was paused due to the COVID-19 pandemic, effectively counting them towards the 20-25 year limit, at which point any remaining debt is forgiven. Additionally, SAVE offers increased income protection for those earning less than 225 percent of the federal poverty guidelines, surpassing REPAYE’s income protection threshold of 150 percent. Furthermore, undergraduate loan payments under SAVE are reduced to 5 percent of disposable income, while graduate loan payments remain at 10 percent. The plan also accounts for more income designated for basic needs, thereby lowering monthly payments. Lastly, borrowers who cannot cover the entire accrued interest amount will have the remaining portion forgiven by the Department of Education, provided they maintain consistent monthly repayments.

Addressing Rising Tuition Costs

While SAVE represents a more favorable repayment option for most borrowers compared to REPAYE and similar income-driven plans, the question arises: does it go far enough? Tuition fees at American tertiary institutions have steadily risen over several decades. According to the Federal Reserve’s Report on the Economic Well-being of US Households from May 2021 to May 2022, 58 percent of 18-22-year-olds with bachelor’s degrees have accrued student loan debt (both paid and unpaid debt), along with 60 percent of 30-44-year-olds with the same credentials. In contrast, only 47 percent of 45-59-year-olds and 32 percent of those aged 60 and above with bachelor’s degrees have student debt. It is evident that more extensive debt relief programs are necessary, but the underlying issue of escalating tuition costs remains unaddressed.

The impact of rising tuition fees and inadequate government aid disproportionately affects Black and Latinx students. A 2022 survey by the Federal Reserve of St. Louis found that 50 percent of Black adults have student debt, compared to 44 percent of White adults and 37 percent of Latinx adults. Even more concerning, 17 percent of Black borrowers and 18 percent of Latinx borrowers were behind on their student loan payments, in contrast to the 9 percent of White borrowers, as reported in a 2021 Federal Reserve survey.

The Future of Debt Relief

Biden’s SAVE plan represents a significant step forward, but it is clear that more action is needed. Addressing rising tuition costs and the neglect of noncommercial debt is crucial. During the COVID-19 pandemic, numerous government efforts have been directed toward commercial debt relief, with some politicians advocating for the forgiveness of large corporate debts, including those in which they have personal interests. However, such generosity has not extended to noncommercial debts. The Biden administration’s acknowledgment of this discrepancy is vital, as it underscores the need for equitable relief: “The hypocrisy is stunning, and the disregard for working-class and middle-class families is outrageous.”

By: Luce Miyar Mullan

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