Q&A – About the Biden Administration's SAVE Program for Student Loans
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station’s page in the iHeart app.
Today’s Entry: Today’s entry was submitted via Talkback asking for me to break down President Biden’s SAVE program for student loan debt.
Bottom Line: Last week’s news that President Biden was forgiving $1.2 billion in student loan debt was the latest effort by the administration to find an end-around solution for doing so following last year’s ruling by the Supreme Court that President Biden’s broad effort was unconstitutional. First proposed just prior to the 2022 midterm elections, President Biden announced a program in which he attempted to use executive authority to cancel up to $400 billion in accumulated student loan debt by up to 43 million Americans. The politically timed move appeared to have moved the needle in that election cycle. A study conducted on the issue last year concluded the following: We find experimental evidence that candidates' embrace of expansive student debt cancellation with few eligibility restrictions generates greater support among relevant constituent groups. Our results suggest that Biden’s executive action may be politically beneficial for Democrats. Despite the Supreme Court striking the original effort down, given the evidenced political benefit with younger voters at the original pass, President Biden is back for more in this Presidential election cycle.
President Biden’s approval rating is not only worst among the youngest voters – with only 28% of voters between the ages of 18-34 currently approving of his performance – it’s near the lowest level of support at any time during his presidency. That's likely a motivating factor behind the renewed effort under the SAVE plan announced by the administration.
The current effort began last August with the signing of an executive action establishing the Saving on a Valuable Education, or SAVE, program. At the time of the announcement the White House indicated that their second crack at student loan debt forgiveness could impact up to 20 million borrowers suggesting that: The SAVE plan will cut many borrowers’ monthly payments to zero, will save other borrowers around $1,000 per year, will prevent balances from growing because of unpaid interest, and will get more borrowers closer to forgiveness faster. The initial action just formalized under the plan that impacts the most borrowers is a change in the payment schedule. According to the rollout:
- Borrowers with undergraduate loans will have their payments reduced from 10% to 5% of their discretionary income.
- Those who have undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income based upon the original principal balances of their loans.
That’s set to kick in this summer. As for those who’d potentially receive various forms of relief under the program – that is far narrower.
- $0 monthly payments. Eligibility and benefits are based on adjusted gross income. The baseline that’s used is whether one earns 225% of the federal poverty level or $33,885. Those below that level could potentially have effectively no monthly payments assessed until and unless they earn more than that threshold
- Suspension of compounded monthly interest payments. Borrowers who pay what they owe on this plan will no longer see their loans grow due to unpaid interest.
- Forgiveness for low-balance borrowers. Borrowers whose original principal balances were $12,000 or less will receive forgiveness after ten years' worth of on-time payments
To potentially be eligible to participate in these changes borrowers must be signed up to the government website for the program. Currently 7.5 million students have signed up – of them an estimated 150,000 are eligible for one of those three changes. Many have wondered how the administration could move forward with additional student loan debt forgiveness efforts given the Supreme Court’s original ruling. The effort being undertaken is through an attempted use of a legal loophole.
In Chief Justice Robert’s majority opinion on the original plan, he said this: The HEROES Act (which was the Iraq war era law passed by Congress to aid in student loan relief for those who’d be deployed overseas in the war, and was the attempted basis for Biden’s student loan debt forgiveness plan) allows the secretary of education to “waive or modify” laws and regulation governing student loan programs. He defined the word modify to mean: “modest adjustments and additions to existing provisions” as opposed to “transforming” the programs. So that’s what they’re going for here – modifications to existing programs that they feel could pass over the legal threshold established by the Supreme Court. We’ll see if that’s the case should there be legal challenges to this program.