The U.S. Education Department said Wednesday it will reopen two major student loan repayment programs to new enrollments while President Joe Biden’s signature plan is on hold amid court challenges.
After months of uncertainty, millions of borrowers will now have “more breathing room,” the administration said in its announcement. The roughly 8 million Americans enrolled in Biden’s halted plan – under which bills have been indefinitely paused – can shift to the older programs now if they want their payments to count toward future debt relief.
Politically, this week’s announcement is an admission in the waning days of Biden’s presidency that his efforts to build the “most affordable repayment plan ever” haven’t been as successful as he hoped, especially after a bruising Supreme Court defeat.
Here’s what to know about the different programs:
In the summer of 2023, the Biden administration opened applications for a student loan repayment program called Saving on a Valuable Education, or SAVE. Borrowers became eligible to enroll in SAVE before the pandemic-era pause in payments concluded the following fall.
Under SAVE, borrowers with loans for undergraduate degrees could’ve seen their monthly bills drop to just 5% of their discretionary income, and many saw their payments go to $0. Millions of people signed up for it.
Read more:Who are the winners and losers in Biden’s SAVE student loan repayment plan based on income?
But the program didn’t last long. State attorneys general in conservative states filed legal challenges against it. This summer, a federal appeals court stopped SAVE completely and raised questions about other government applications that factor in people’s wages.
The Education Department has since placed all SAVE enrollees in interest-free forbearance, which means they don’t have to make payments and their loans won’t collect interest – for now.
But there’s a catch. While SAVE remains in limbo, borrowers who don’t enroll in another plan in the interim can’t make progress toward full forgiveness. Under most repayment plans tied to wages, people’s loan debt is cleared after 20 to 25 years.
The federal agency is also particularly worried about borrowers who qualify for a program called Public Service Loan Forgiveness, or PSLF. Public service workers – including health care professionals, emergency responders and some nonprofit employees – typically combine PSLF payments with plans based on their income, keeping their bills low and allowing them to remain eligible for relief after 10 years.
Luckily, for people with high loan bills and low wages, SAVE isn’t the only way to pay based on income and family size.
The Education Department offers several similar plans. The two now open for new enrollments are the Pay As You Earn Repayment Plan, known as PAYE, and the Income-Contingent Repayment Plan, or ICR.
Under PAYE, which was established in 2012, borrowers don’t have to make any loan payments if they live alone and make less than $22,590 a year or $46,800 for a family of four. If they make more than that, the plan requires them to pay 10% of their monthly income. They’re eligible for full relief after 20 years of payments.
ICR isn’t as good a deal for most borrowers. It’s an older plan that brings payments to $0 for borrowers who live alone and make $15,060 or less a year, or $31,200 for a family of four. Borrowers who earn more are required to pay 20% of their annual income. They can qualify for total debt cancellation after 25 years.
Both programs are open this month to new enrollments and will remain so through July 1, 2027, the Education Department said.
Zachary Schermele is an education reporter for USA TODAY. You can reach him by email at zschermele@usatoday.com. Follow him on X at @ZachSchermele.
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