3 min read
Imagine that feeling of seeing your student loans forgiven and being one step closer to debt freedom - that might just be your reality soon with the new announcement from the Biden Administration that includes student loan forgiveness for some borrowers. Let’s break it down.
President Joe Biden wrote “Imagine checking your student debt balance and seeing $0.00. Starting next month, many Americans enrolled in our SAVE plan will join the already 3.6 million who have seen their student debt canceled by my Administration through various actions.”
So what does this mean for those of you that are enrolled in the SAVE plan for student debt?
What is the SAVE plan?
Essentially, it’s an income-driven repayment plan that allows those who are making a lower income to have a reduced monthly payment for their student loans. It was rolled out by the Biden Administration in August of 2023 in order to build upon Biden’s belief that “education beyond high school should unlock doors to opportunity, not leave borrowers stranded with debt they cannot afford.”
The SAVE plan has a few goals:
- Cut payments in half for those with undergraduate loans: borrowers with undergraduate loans can have their payments reduced to 5% of their disposable income. Borrowers who have graduate or undergraduate loans will have payments between 10% and 5% of their disposable income, based on the original amount of their loans.
- Bring loan payments for $0 per month for some: The monthly payment amount for the SAVE plan is based on the difference between the borrowers adjusted gross income and the poverty guideline amount for the family size put in place by the U.S. Department of Health and Human Services.
- Loan balances will never grow as long as they keep up with payments: with this goal the Department of Education will no longer charge interest on loans that cannot be covered by the borrower’s payment when enrolled on the SAVE plan.
- Early forgiveness with low-balance loans: the SAVE plan allows borrowers to see forgiveness in less time, for those that have $12,000 or less will have their loans forgiven after 120 qualifying payments. Payments made before 2024 count towards these qualifying payments.
The SAVE plan was put in place to help borrowers get out of student loan debt faster, easier, and have payment plans tailored to their income. Since the point of college is to hopefully increase your average pay once you graduate, the SAVE plan puts an emphasis on those that have student loans but have not seen an increase in their average pay with this form of IDR (income-driven repayment).
So, what’s changing with the new announcement?
Under the original SAVE plan there was a caveat that would allow for faster forgiveness with low-balance loans in as little as 10 years. This caveat was set to go into effect later this summer, but is now scheduled to roll out in February.
In the Biden Administration’s announcement they said “the shorter time to forgiveness benefit will particularly help borrowers who attended community colleges; these students typically borrow smaller amounts.” So those of you who borrowed undergraduate loans in small amounts will likely see the benefits of this acceleration.
This is not a new aspect of the SAVE plan but simply one that will be heavily accelerated, instead of rolling out this summer, it will go into effect next month. The Biden Administration is planning notifying qualifying borrowers later this week, and those that aren’t enrolled in the SAVE plan that have borrowed less than $12,000 initially, are being encouraged to enroll as soon as possible.
How to sign up for the SAVE plan
Signing up for the save plan is pretty simple.
Login to your studentaid.gov account
Click on the “Loan Repayment” dropdown menu along the top
Click on “Income Driven Repayment (IDR) Plans”
Click on the “Apply” button next to the IDR plan
Follow the instructions in the application and submit
You will hear back from studentaid.gov if the application is approved
Studenaid.gov has great resources and more information about the SAVE plan that I recommend you read over as well! You will need to be logged in to apply for the SAVE IDR plan.
Why is this important?
Fam, you know my stance on debt, it’s a bad cycle and doesn’t allow you to invest and save for retirement and ultimately enjoy a life of freedom and not having to worry about drowning in payments, living paycheck to paycheck, and being able to support yourself and your family.
Student loans are a huge part of debt and so many people find themselves drowning in it, so taking advantage of this accelerated SAVE benefit will help reduce your debt and allow you to focus on wealth building and creating a path to retirement.
This new rollout is essentially a way to accelerate your own financial freedom, if you borrowed $12,000 in student loans and are enrolled in the SAVE plan because you’re not seeing that added income you hoped for when you started college, taking advantage of this is paramount for your later financial freedom, and much sooner than you may have originally planned.
Use this to accelerate your own financial planning
If you’re one of the borrowers that qualifies for this benefit, you can further take advantage of it by reviewing your debt once this goes into effect and creating a brand new plan on becoming financially independent and planning for retirement.
Next month, with the new amount forgiven, if you qualify, you can re-evaluate your debt and calculate how much you have to pay off now that your student loan is out of the way. Then you can start to create a new plan for yourself to help you become debt free, and there’s a few ways you can do that:
- Get a second job
- Plan out getting a raise at your current job to bring in extra income
- Create a new budget to include the payments that will no longer being going to your student loan
- Put more money into your emergency fund to prepare for the unexpected
- Start the debt snowball method of paying off your debt
- Stop using credit cards
It may seem like a daunting task, but having your student loans forgiven if you qualify with this new announcement, could be a huge weight off your shoulders, y’all, and it would be ridiculous not to take advantage of that and start investing in yourself and your retirement.
The SAVE plan was initially rolled out by the Biden Administration in August of 2023 and it had this early payoff included in the plan, but it wasn’t set to go into effect until later this summer. With the Biden Administration’s newest announcement, this is set to go into effect next month.
For those who qualify, if you borrowed $12,000 or less initially, you can get the remaining balance of that student loan forgiven with 10 years of qualifying payments. Payments that you made before 2024 will count towards the 10 years of qualifying payments. If you’re not already enrolled in the SAVE plan and you originally borrowed $12,000 or less in student loans, the Biden Administration is highly encouraging getting enrolled as soon as possible.
If you’re one of these qualifying borrowers, you’ll want to take full advantage of this early rollout and start to re-evaluate your plan for becoming debt free. With your student loans out of the way, it’s a great time to start putting money away in an emergency fund, investing in retirement, getting a second job or asking for a raise at your current job to help bring in extra income, and start using the debt snowball method to keep the debt repayment momentum going.
Debt can keep you locked in and away from the financial freedom you want, so with this new announcement, taking full advantage of it will help you get out of debt and continue on your journey to no longer living paycheck to paycheck, living debt free, investing in your retirement, and providing for yourself and your family.