The government just announced a significant update to federal student loan repayment plans, offering not just easing of repayment terms but also the prospect of full debt cancellation.
Starting next month, if you’re enrolled in a SAVE (Saving on a Valuable Education) student loan repayment plan, took out less than $12,000 in loans and have been in repayment for 10 years, your student debt will be cancelled.
The news couldn’t come any sooner, as the current U.S. student loan debt is $1.77 trillion, according to the Federal Reserve. It’s also good news for federal student loan borrowers. In October 2023, after more than three years of a pandemic-induced pause, 43 million borrowers had to begin paying monthly student loan payments.
The Biden administration had once proposed a sweeping debt cancellation, which would erase up to $20,000 per borrower, but that plan was stalled by the Supreme Court in June 2023. The administration then revised the existing REPAYE plan, and introduced the SAVE repayment plan.
As of now, nearly 6.9 million borrowers are enrolled in the SAVE Plan, which is based on an income-driven repayment structure. It adjusts monthly payments according to a borrower’s income, ensuring that repayments are manageable and do not contribute to financial distress.
This approach isn’t entirely new; income-driven repayment plans have been around for decades, offering debt cancellation after 20 to 25 years for undergraduate and graduate loans, respectively. However, the SAVE plan speeds up this timeline significantly.
Who Is Eligible for Debt Cancellation?
Every federal student loan borrower is eligible for the SAVE repayment program. A crucial aspect of the SAVE plan is its retrospective nature — if you’ve already made years of payments, these count towards the debt cancellation period upon enrolling in the SAVE program. In practical terms, a borrower who has made 10 years of payments on a loan originally below $12,000 would be eligible for immediate forgiveness upon enrollment.
How Do I Apply for the Save Plan?
The application process for the SAVE plan is straightforward and accessible online. Prospective enrollees should visit studentaid.gov/idr or their federal loan servicer’s website to initiate the process. The application takes about 10 minutes and requires:
- Contact information
- Household size and dependents, if any
- Federal loan details, accessible on your studentaid.gov account, and
- Financial information including salary, retirement plan, health insurance costs and mortgage payments.
