The Biden administration unveiled a beta website for its new income-driven repayment plan. Borrowers who sign up could see their payments cut to as little as $0 per month.
The site allows borrowers to start submitting applications for the new SAVE—Saving on a Valuable Education—plan. It takes approximately 10 minutes for borrowers to apply, according to the site; they must provide details from their tax returns to determine eligibility (they can also self-certify their income directly with their loan servicer).
Many of the sections can be auto-populated by allowing the IRS to share financial information with the U.S. Department of Education, and borrowers can opt to auto-recertify each year (a big change from the current process). Borrowers will receive a confirmation email once their application is submitted, and can expect a response in a few weeks.
Those who apply on the beta site will not have to reapply when it officially launches in August. The Education Department notes that “the application may be available on and off during this beta testing period.” If it’s not available when borrowers try to apply, they can try again later.
Federal student loan payments are set to resume in October after a three-and-a-half-year hiatus that started at the beginning of the COVID-19 pandemic (the Education Department says those applications submitted this summer will be processed in time for borrowers’ first payment due date). Though the Biden administration had been working out the details of the new IDR plan for some time, it was finalized after the U.S. Supreme Court blocked Biden’s wider student loan forgiveness efforts at the end of June.
Experts say the IDR changes are potentially more significant for borrowers, as it could reduce the amount more borrowers pay on their loans, and has no end date.
An income-driven repayment plan uses a borrower’s annual income and family size to determine their monthly student loan bill. The amount is recalculated each year to take into account any changes, and any remaining debt is forgiven after 20 to 25 years.
How does the new IDR plan work?
The new IDR plan decreases the percentage of discretionary income borrowers would need to repay, and cuts the repayment period for some borrowers (those who borrow $12,000 or less now receive forgiveness after making 10 years of payments). Those earning less than around $32,800 (less than $67,500 for a family of four) would qualify for $0 monthly bills. If borrowers make payments in full each month, unpaid interest will not accrue.
The changes could lead to a 40% reduction in how much the average borrower pays during their lifetime, according to the Education Department, helping the lowest-earning borrowers more.
“The IDR plan is going to be very generous relative to the current law for many borrowers,” Kent Smetters, faculty director of the Penn Wharton Budget Model, previously told Coins2Day. “Paying off college debt is going to be substantially easier.”
Interest will start accumulating again on federal student loan balances in September, while payments will be due in October.
Earlier in July, the Education Department announced some 804,000 borrowers will have their student debt, totaling $39 billion, erased, thanks to a recount of payments done to “address historical failures” in administering the IDR program. So far, Biden has forgiven more than $116.6 billion in student loans for more than 3.4 million borrowers.