The path to student debt cancellation just got shorter — for some. Here’s how it works
Did you take out less than $21,000 in student loans? Forgiveness might be closer than you thought.
Here’s what you need to know about the shortened path to student debt forgiveness for borrowers on a new plan.
What’s the plan?
President Joe Biden’s administration announced forgiveness for certain borrowers on the new Saving on a Valuable Education plan is coming sooner than planned, according to a news release from the U.S. Department of Education.
“Today’s announcement will help struggling borrowers who have been making loan payments for years, including many who never graduated from college,” Under Secretary James Kvaal said last week in the news release. “Giving borrowers with smaller loans a faster path to being debt free will help many borrowers avoid financial distress and have peace of mind.”
The SAVE plan was introduced last year and replaced the Revised Pay As You Earn plan. The SAVE plan, which the White House calls the “most affordable repayment plan ever created,” is a type of income-driven repayment plan.
Payments under that plan are based on your income and family size, according to the Office of Federal Student Aid. It shields more income for basic needs, which gives you less discretionary income that payments are based on. Plus, your loan balance won’t grow because of unpaid interest if you keep up with payments.
You can sign up by going to StudentAid.gov/SAVE.
What’s changing?
One of the benefits of the plan, announced by the Education Department last year, is that borrowers who originally took out $12,000 or less would have their balance forgiven after 10 years of payments. That was supposed to go into effect in July.
The department announced Jan. 11 that it was shortening the path to cancellation and beginning forgiveness in February.
The Education Department said community college attendees will be especially helped as they generally borrow less money.
The department said most borrowers who default originally borrowed $12,000 or less.
And it’s not just for those who borrowed less than $12,000. For every $1,000 borrowed above that amount, a borrower could see that debt forgiven after an extra year of payments, according to the Federal Register. For example, if you borrowed $14,000, you’d see forgiveness after 12 years.
You’ll see a benefit from this early forgiveness if you took out less than $21,000.
If you took out more, don’t panic. Your repayment term cap will kick in. That’s the maximum length of time you’ll be repaying the debt. It varies depending on if you have undergraduate, graduate or a mix of loans. If you have only undergraduate loans, your cap is 20 years. If you have a mix or just graduate loans, your cap is 25 years, according to the Office of Federal Student Aid.
You have to sign up for the SAVE plan, if you are not one of the 6.9 million borrowers who has done so already. The Education Department said it will email borrowers whose balances and time they’ve been repaying show they could benefit.
Of the 6.9 million enrollees, 3.9 million borrowers have a $0 payment. Those who are paying are saving around $117 a month. And 75% of SAVE borrowers received Pell Grants, which are federal grants awarded to low-income students.
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This story was originally published January 19, 2024 at 5:00 AM with the headline "The path to student debt cancellation just got shorter — for some. Here’s how it works."
