The Supreme Court Shot Down Student Loan Forgiveness, but These New Provisions Could Still Save You Thousands

July 12, 2023

On June 30, 2023, the Supreme Court ruled that President Biden had no authority to forgive student loan debt under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act). This was a major setback for student loan borrowers who were hoping for relief from their debt.

However, President Biden has announced a few new provisions that will provide some relief to student loan borrowers. These provisions include:

The Saving on a Valuable Education (SAVE) plan, a new income-driven repayment (IDR) plan that offers lower monthly payments and a shorter forgiveness period.
A 12-month “on-ramp” program to lessen the impact of payment delinquencies.

The SAVE Plan

The SAVE plan was initially announced in 2021, however, the plan was finalized by the Biden administration in June 2023. The SAVE plan will replace the current Revised Pay-As-You-Earn (REPAYE) plan. It is designed to be the most affordable IDR plan available, and it offers a number of benefits that other IDR plans do not.

Here are some of the key features of the SAVE plan:

Lower monthly payments: The SAVE plan reduces the monthly payment amount for undergraduate borrowers by half, from 10% of discretionary income to 5%. This could save borrowers hundreds of dollars per month.
Zero-dollar payments: Borrowers who make less than 225% of the federal poverty level can qualify for zero-dollar monthly payments under the SAVE plan.
Shorter forgiveness period: Borrowers with original loan balances of $12,000 or less can have their debt forgiven after 10 years of payments under the SAVE plan, instead of the 20 years required under other IDR plans.
No interest capitalization: Under the SAVE plan, unpaid interest will not capitalize, which means that it will not be added to the loan’s principal balance. This can help borrowers pay down their debt faster.

The 12-Month “On Ramp” Program

The Department of Education is creating a temporary “on-ramp” to protect borrowers from the harshest consequences of late, missed, or partial payments for up to 12 months. This means that borrowers will not be reported to credit bureaus, be considered in default, or be referred to collection agencies for late, missed, or partial payments during this period. Interest will still accrue during the on-ramp period, but it will not capitalize at the end of the period. This means that the interest will not be added to the loan’s principal balance.

The Biden Administration urges borrowers who can pay should do so, but this on-ramp period gives those who cannot make payments right away the necessary time to adjust, enabling them to ultimately make their monthly payments and meet their financial obligations on their loans. Borrowers do not need to take any action to qualify for this on-ramp.

Here are some additional details about the on-ramp period:

Who is eligible? All borrowers repaying their student loans are eligible for the on-ramp period.
When does it start? The on-ramp period will start on October 1, 2023, and run through September 30, 2024.
What happens after the on-ramp period? After the on-ramp period, borrowers will be responsible for making their regular monthly payments. However, they will still have the option to enroll in an income-driven repayment plan, which can lower their monthly payments.

Student Loan Forgiveness In the Future?

Despite the Supreme Court ruling, the Biden administration has not given up on pursuing student loan forgiveness. The administration is still exploring other options for providing debt relief to student loan borrowers, such as executive action or legislation. However, it is unclear if any of these options will be successful.

You can to learn more about the new provisions that President Biden has put in place by visiting the Department of Education’s website or contacting your loan servicer for more information.