The US Supreme Court last week struck down President Joe Biden’s student debt forgiveness program, cratering his plans to forgive up to $20,000 per eligible borrower using the Higher Education Relief Opportunities for Students Act of 2003.
The president, who made aiding the 44 million Americans carrying $1.77 trillion in federal student loans a plank of his candidacy, insists “this fight is not over.”
Just hours after the high court’s ruling, the White House laid out a new multipronged approach to providing debt relief “for as many borrowers as possible, as fast as possible.”
Here’s what to know about the administration’s new plan for student loans, including who it may help, when it could go into effect and what else might be in the works.
An ‘on-ramp’ transition period
After a pause of more than three years, student loan payments are slated to resume in October.
To aid with the transition, the administration has announced a yearlong “on-ramp” period, in which borrowers who miss monthly payments will not be considered delinquent, placed in default, reported to credit bureaus or referred to debt collection agencies, according to the Education Department.
Interest will accrue during the period, which will run from Oct. 1, 2023, to Sept. 30, 2024.
The SAVE plan
Like REPAYE, the SAVE plan is based on income and family size. But payments will be capped at 5% of a borrower’s discretionary income, down from the current 10%.
Millions of Americans making less than $33,000 a year will see their payments lowered to zero dollars, Cardona added in a White House briefing, and all other borrowers will save at least $1,000 per year.
According to the Department of Education, the SAVE plan will cut payments on undergraduate loans in half compared to other income-based plans and ensures borrowers who keep up with payments won’t see their balance ratchet up.
If you have a federal direct loan in good standing and are already on the REPAYE plan, you will automatically be enrolled in the SAVE plan, Cardona said.
The Higher Education Act
Biden said he would try authorizing broad education loan relief again, but this time under the auspices of the Higher Education Act of 1965, which grants the Department of Education the power to “compromise, waive or release” federal student loans.
Unlike the HEROES Act, HEA isn’t dependent on a national emergency.
From 2021 to 2023, roughly 615,000 borrowers had their federal student loans erased under HEA’s Public Service Loan Forgiveness Program.
But using it as a basis for widespread forgiveness will likely mean a new set of legal challenges. It could also take longer, as it requires there to be public hearings and a feedback period.
Describing the HEA strategy as “legally sound,” Biden called it “the best path that remains to providing for as many borrowers as possible with debt relief.”