President Joe Biden and his administration have initiated the clearance of $1.2 billion in student debt balances for 153,000 borrowers. Under the Saving on a Valuable Education (SAVE) income-driven repayment plan, borrowers who initially borrowed $12,000 or less at least 10 years ago have begun receiving notifications of debt forgiveness, as announced by the administration on Wednesday.
In an email to qualifying borrowers, President Biden expressed hope that this relief would provide them with some breathing room and enable them to pursue their life goals, such as supporting themselves and their families, buying their first home, or starting a small business.
The SAVE plan, launched in summer 2023, was promoted by the administration as the most financially accessible repayment option for borrowers. Originally slated to commence this summer, the opportunity for low-balance borrowers to have their loans forgiven after a decade of payments was advanced, as announced in January.
Qualifying borrowers have now begun to receive emails informing them of their loan forgiveness eligibility. These individuals do not need to take any further action to receive relief. Additionally, the Department of Education will begin reaching out to borrowers next week who are eligible for forgiveness but have not yet enrolled in the SAVE plan.
Under the SAVE plan, all borrowers are eligible to have their remaining balances forgiven after 20 years of repayment for undergraduate loans or 25 years for graduate school loans, irrespective of the initial borrowing amount. For those who borrowed $12,000 or less, forgiveness can be attained after 10 years of payments, with an additional year required for every $1,000 borrowed beyond $12,000. This means that individuals who borrowed $21,000 or less in undergraduate loans can have their debt forgiven on an expedited timeline compared to the standard 20-year term.
Why Relief is Critical for Low-Balance Borrowers
While it might appear that individuals with smaller initial student loan balances would face less difficulty in paying them off, Education Secretary Miguel Cardona emphasizes that many of these borrowers end up with modest balances because they do not complete college, leading to lower earning potential compared to their peers with degrees.
According to a 2020 survey by the Federal Reserve, 21% of borrowers with outstanding student debt under $15,000 were behind on their payments, a higher percentage than those with higher balances.
Cardona explains, “We acknowledge that many individuals who take out smaller loans are those who do not complete their degree and are left with unmanageable debt, often earning low incomes. This subgroup is particularly disadvantaged by the current system.”
Moreover, borrowers who met forgiveness criteria before January 2024 but continued making loan payments during or after that month can expect refunds, as stated on the Federal Student Aid website.
The timing of this forgiveness is crucial as student loan borrowers face pivotal decisions regarding balancing loan payments with saving for retirement. While more relief is forthcoming for borrowers on the SAVE plan, including reduced monthly payments later this summer, advocates of debt forgiveness are lauding this recent wave of cancellations.
Natalia Abrams, president of the Student Debt Crisis Center, asserts, “Student debt cancellation liberates borrowers from a financial burden that has long held them back. This further underscores the necessity of student debt cancellation to restore affordability to higher education in our country.”
