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Enrolling in Biden’s Student Loan Repayment Plan: A Step-by-Step Guide

Borrowers who are struggling to repay their federal student loans now have a new option to reduce their payments by up to half. The Biden administration’s new income-driven repayment plan, known as SAVE, is now open for enrollment. This plan offers a more affordable way for millions of borrowers to pay their monthly student loan bills. The plan is based on income and family size.

Enrollment invitations will be sent out to more than 30 million borrowers in the coming days. Unlike the previous plan to cancel up to $20,000 in federal student debt, which was struck down by the Supreme Court, the SAVE plan will be a permanent option for both current and future borrowers. It also includes an automatic enrollment feature for borrowers who have fallen behind on their payments.

To sign up for the SAVE plan, borrowers should act quickly as the application process may take up to four weeks to be processed. By enrolling now, borrowers can ensure that their paperwork is processed in time for their first payment due date.

The new SAVE plan operates similarly to other income-driven repayment plans. Payments are based on the borrower’s earnings and household size and are readjusted each year. After making payments for a certain number of years (usually 20), any remaining balance is forgiven. The SAVE plan reduces payments on undergraduate loans to 5% of discretionary income, down from 10% in the previous plan. Graduate loans are eligible as well, with borrowers paying 10% of discretionary income for that portion. The payment formula has also been adjusted to protect more income for basic needs, allowing more low-income workers to qualify for $0 payments.

One of the attractive features of the SAVE plan is how it treats interest. If a borrower’s monthly payment does not cover the interest owed, the Education Department will cancel the uncovered portion. This provides relief to borrowers who have seen their balances increase due to unpaid interest.

While some components of the SAVE plan are already available, such as shielding more income from the repayment formula and treating unpaid interest differently, other benefits, like reducing payments to 5% on undergraduate loans, will take effect in July. Once fully implemented, the SAVE plan is expected to significantly reduce monthly payments for most borrowers compared to the previous repayment plan.

Borrowers with small loan balances (original balances of $12,000 or less) will also see changes in their repayment period. Instead of the typical 20-year repayment period, these borrowers will make monthly payments for 10 years before their balance is forgiven. Borrowers can use the loan simulator tool on StudentAid.gov to analyze which repayment plan is best for them.

Borrowers who were in default before the payment pause, as well as those who fell behind on their monthly payments, have received a fresh start and can enroll in the SAVE program. There are certain steps they need to take to regain their eligibility. Borrowers who go 75 days without making a payment will be automatically enrolled in the SAVE plan, starting from next July, if they have provided approval to disclose their federal tax information to the Education Department.

To sign up for the SAVE plan, borrowers can visit StudentAid.gov/SAVE. Loan servicers can also assist borrowers in enrolling and self-certifying their income.

Once enrolled, borrowers need to update their income information annually. However, if borrowers give permission to the Education Department to access their income information through the IRS, they will not need to recertify their income each year.

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