Education Dept. fast-tracks forgiveness for borrowers with smaller student loans
In a surprise move, the Biden administration says it will fast-track a big change, previously scheduled for July, that will soon erase the debts of thousands of federal student loan borrowers — undergraduate as well as graduate students who initially borrowed less than $21,000.
The administration's cancellation math will work like this: Anyone who borrowed $12,000 or less in federal student loans and has been in repayment for at least 10 years will have their debts automatically erased in February, as long as they first enroll in the Biden administration's new income-based repayment plan known as SAVE. It does not matter what repayment plan or plans they were in before, so long as they were actively repaying their loans and now enroll in SAVE.
With each additional $1,000 of debt, the window for forgiveness increases by one year. For example, a student who took out $13,000 in loans will now have their debts erased if they've been in repayment for 11 years — or in 12 years for those who borrowed $14,000 and so on.
The U.S. Education Department will base the policy on the amount students initially borrowed, not on the amount they currently owe.
"I am proud that my Administration is implementing one of the most impactful provisions of the SAVE plan nearly six months ahead of schedule," President Biden said in a Friday statement.
"Today's announcement gives borrowers an even greater reason to check out the SAVE plan and find out if they may qualify for earlier debt relief," Education Secretary Miguel Cardona said in a press release.
The Biden administration does not yet know precisely how many borrowers will immediately qualify for cancellation through the policy change.
On a call Thursday with reporters, Education Under Secretary James Kvaal added that this move will help a particularly vulnerable group of federal student loan borrowers.
"This group has low incomes. About three-quarters of them receive Pell Grants. About one-third of them first attended a community college," Kvaal told reporters. Perhaps most importantly, "more than 3 in 5 borrowers with defaulted loans originally borrowed less than $12,000."
Many of these low-debt borrowers also have something else in common, Kvaal said: They left school before completing a degree. In the past, non-completers have often fallen into default because they struggle to repay their debts without the wage premium that comes with a degree.
Until now, one of the department's signature loan forgiveness efforts had been focused on borrowers with older debts — 20 years or more. This move builds a policy bridge to borrowers who have spent far less time in the student loan system.
SAVE is the most forgiving repayment plan yet (literally)
To qualify for the fast-tracked forgiveness announced on Friday, borrowers need to first enroll in the SAVE plan, which is becoming a key vehicle for President Biden's debt relief efforts in the wake of the Supreme Court's scuttling of his broader relief plan. Beginning in February, borrowers enrolled in SAVE will be notified if their debts qualify for cancellation, with no further action required.
The administration also announced that, as of early January, 6.9 million borrowers have enrolled in SAVE with more than half, 3.9 million, making incomes low enough to qualify for a $0 monthly payment.
The SAVE plan exempts more of a borrower's income from the monthly payment math than previous plans, and, under SAVE, interest no longer accumulates beyond what a borrower can afford to pay each month. Under previous plans, borrowers with low or $0 payments — too low to cover their monthly interest — saw that interest explode. With SAVE, that stops.
What's more, the plan promises multiple windows for loan forgiveness, which means many borrowers will end up paying far less over time on SAVE than they would have on old plans. In fact, the department itself acknowledges that, under a previous plan for low-income borrowers, borrowers repaid, on average, $10,956 for every $10,000 they borrowed. Under SAVE, they will pay back just $6,121.
That's why Republicans in Congress have been fighting to stop SAVE.
"President Biden is downright desperate to buy votes before the election – so much so that he greenlights the Department of Education to dump even more kerosene on an already raging student debt fire," said the Republican chair of the House Education Committee, Virginia Foxx of North Carolina, after Friday's announcement. "It would surprise no one if the Department relied on infants playing with abacuses to balance its books – it is a complete and utter disaster."
While House Republicans have fought the plan, President Biden has said, even if Congress does send him a bill to kill SAVE, which the Senate seems unwilling to do, he'll veto it.
Friday's announcement comes after the department's shaky launch of its new Free Application for Federal Student Aid, or FAFSA, form – which included a big mistake that will lower the amount of federal aid many applicants receive unless it's remedied soon. The department is wrestling with when, and how, to fix this mistake, all while navigating a funding crisis.
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Transcript
A MARTÍNEZ, HOST:
Next month, the Biden administration is going to offer loan forgiveness to borrowers with smaller student loan amounts who've been in repayment as little as 10 years. For more on this, let's bring in NPR education correspondent Cory Turner. Cory, so let's start off with the first thing, which is, who exactly is this going to affect?
CORY TURNER, BYLINE: Yeah, it starts with borrowers who took out $12,000 or less in student loans, A. And that's not how much they currently owe. It is what they borrowed at the start. And they need to have been in repayment for at least 10 years. If they meet those two criteria, then they should technically qualify to have their debts erased. It is also, though, worth mentioning it's a stair-step policy. So for every thousand dollars you add, just add one more year until forgiveness. So folks who borrowed less than $13,000 can qualify for relief in 11 years, $14,000 12 years and so on.
MARTÍNEZ: OK, so do borrowers need to do anything right now, maybe, to qualify?
TURNER: Yes. The one thing borrowers must do now to qualify is enroll in the repayment plan known as SAVE. That's the Biden administration's new income-based repayment plan. And this forgiveness policy is one of that plan's big headline benefits. As of January, we know now 6.9 million borrowers have enrolled in SAVE. And more than half of them, A, make incomes low enough that they qualify for a $0 monthly payment. Now, once borrowers have enrolled in SAVE, the department will then look back through their payment histories. And it doesn't matter what kind of repayment plan they were on before - as long as they were in repayment. And starting next month, it will begin automatically erasing debts for those who qualify.
MARTÍNEZ: Any idea how many borrowers this might affect?
TURNER: That is the real question. No, not yet, but my gut tells me it's probably a lot.
MARTÍNEZ: Yeah, yeah.
TURNER: On a call with reporters yesterday, the Ed Department leadership refused to offer any kind of number just yet, but they did say that this will especially help some of the system's most vulnerable borrowers. And this is important here. The department's undersecretary pointed out that Americans who borrow less than $12,000 generally have lower incomes. They often started at a community college. And many never completed a degree. And that's why, believe it or not, borrowers with these smaller debts and no degrees are actually much more likely to default on their loans than are college graduates with much larger debts because they never got the wage bump that comes with a degree.
MARTÍNEZ: You know, this announcement was kind of a surprise. So yeah, why this, and why now?
TURNER: Yeah. There is not an easy answer to this question. The Biden administration had always planned to do this. The move itself was not a surprise. The timing was. It was supposed to kick in in July of this year, 2024. As for why they're suddenly fast tracking it now, it's not clear. The department did not explain. I should say, while this is likely going to be popular with borrowers, Republicans are really unhappy about it and about SAVE more broadly. You know, they still point to estimates that say it could cost as much as $475 billion across 10 years. In a statement on this latest move, the Republican chair of the House Ed Committee, Virginia Foxx, was pretty withering and offered her own theory on the timing. She said President Biden was doing this to, quote, "buy votes before the election" and that it would surprise no one if the department had infants balancing its books with abacuses.
MARTÍNEZ: NPR education correspondent Cory Turner. Cory, thanks.
TURNER: You're welcome.
(SOUNDBITE OF ARC DE SOLEIL'S "GOT CAUGHT IN AMSTERDAM") Transcript provided by NPR, Copyright NPR.
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