What Impact Will the End of the Biden-Era SAVE Plan Have on Student Loan Borrowers?

Millions of federal student loan borrowers were relieved when the Biden-era Savings on a Valuable Education (SAVE) plan was introduced, offering more borrower-friendly terms, including capped monthly payments, limited interest accumulation, and clearer paths to debt forgiveness. However, with the current administration reviewing policies and considering the potential end of the SAVE plan, uncertainty has arisen over what the future holds for student loan borrowers.

If the SAVE plan is dismantled, as some proposals suggest, the consequences could be severe, especially for borrowers who relied on the protections it offered. The changes could impact borrowers’ monthly payments, extend the timeline for forgiveness, and make the repayment process more financially burdensome in the long run.

Biden-Era SAVE Plan

The SAVE plan was created to replace older income-driven repayment (IDR) programs, offering more affordable terms for borrowers over the long term. Key features of the SAVE plan included:

Feature	Details
Monthly Payment Cap	Capped at 5% of discretionary income, down from 10% under older plans.
Forgiveness Timeline	Balances could be forgiven after 10-20 years of qualifying payments.
Negative Amortization Ended	No more negative amortization, meaning borrowers couldn’t owe more than they borrowed, even if payments were insufficient to cover interest.

The SAVE plan provided significant relief, particularly for borrowers with low to moderate incomes or those who were just starting their careers. The reforms aimed to ensure that borrowers would have a clear path toward debt forgiveness without falling deeper into debt due to interest accumulation.

What Happens If the SAVE Plan Ends?

If the SAVE plan ends, borrowers would likely be pushed back to the older income-driven repayment plans (IDR), such as REPAYE or IBR (Income-Based Repayment), which have less favorable terms. Here’s a look at the potential impacts:

Impact	Details
Higher Monthly Payments	Under older IDR plans, borrowers may face higher monthly payments compared to the 5% cap under the SAVE plan.
Longer Forgiveness Timelines	Borrowers might have to pay for 20-25 years before achieving forgiveness, depending on the plan.
Negative Amortization	In some cases, interest can accumulate, leading to borrowers owing more than they originally borrowed, even if they make consistent payments.

Higher Monthly Payments

One of the biggest changes that borrowers could face if the SAVE plan is dismantled is an increase in their monthly payments. Under the older IDR programs, the payment caps were higher, typically around 10-15% of discretionary income, compared to the more manageable 5% under the SAVE plan.

For borrowers in fields like teaching, social work, or public service, these higher payments could be financially burdensome, especially when combined with rising living costs and other expenses like rent or medical bills.

“The SAVE plan made it easier for borrowers in lower-paying jobs to manage their student loan debt. Reverting to older IDR programs would make it harder for those borrowers to keep up with payments,” says Sarah Miller, a financial advisor specializing in student loans.

Longer Forgiveness Timelines

Another significant impact would be the extension of forgiveness timelines for many borrowers. Under the SAVE plan, borrowers could see their loans forgiven in 10-20 years, depending on their profession and income. However, in older IDR programs, the forgiveness timeline was often much longer, generally 20-25 years.

For borrowers who were on track to receive forgiveness under the SAVE plan, the dismantling of the plan could reset their progress or require them to make more payments over a longer period.

Negative Amortization

A critical benefit of the SAVE plan was that it ended negative amortization a process where borrowers end up owing more than they originally borrowed because the payments weren’t enough to cover the interest. Under older IDR programs, this was a common issue for many borrowers, particularly those with low discretionary income or high interest rates.

If the SAVE plan ends and borrowers revert to the older IDR frameworks, they could see their balances grow over time, even if they are making regular monthly payments.

Who Will Be Most Affected If the SAVE Plan Ends?

Not all borrowers will experience the same level of impact if the SAVE plan is dismantled. However, certain groups are more likely to feel the effects acutely:

Group	Potential Impact
Low-Income and Early-Career Borrowers	These borrowers, especially those in public service, may face significantly higher monthly payments, making it harder to meet other financial needs.
Borrowers Nearing Forgiveness	Those close to debt forgiveness under the SAVE plan could see their progress reset, with new forgiveness timelines extending the process by several years.
Borrowers with High Interest and Low Income	Borrowers with high interest rates but low income could see their balances increase due to negative amortization under older plans.

Low-Income and Early-Career Borrowers

Borrowers who are in the early stages of their careers, especially in fields like education, social work, or public service, stand to be most affected by the potential end of the SAVE plan. These individuals typically have lower salaries, and the lower payment cap under the SAVE plan was crucial to managing their student loan debt.

If the SAVE plan ends, these borrowers could face substantially higher payments, which might be financially unmanageable given their lower incomes.

Borrowers Nearing Forgiveness

Many borrowers who were enrolled in the SAVE plan were close to forgiveness, especially those in public service careers. If the plan ends, these borrowers may see their forgiveness timeline extended, requiring them to make payments for a longer period, potentially resetting their progress.

Borrowers with High Interest and Low Income

For borrowers who have high interest rates but low discretionary income, the end of the SAVE plan could expose them to growing debt due to negative amortization. These borrowers were shielded from this issue under the SAVE plan, but without those protections, they could end up owing more than they originally borrowed, despite making regular payments.

Advocates vs. Critics

The proposal to dismantle the SAVE plan has sparked a fierce debate. Advocates of ending the program argue that it could restore fiscal discipline and reduce federal outlays on forgiveness programs. However, critics warn that reverting to older IDR frameworks would disproportionately harm younger, lower-income, and minority borrowers, many of whom have been saddled with escalating tuition costs and an unprecedented student debt crisis.

“Ending the SAVE plan would likely harm those who are already struggling with student loan debt. The new proposals could worsen the situation for the borrowers who need help the most,” says Jessica Peterson, an education policy expert.

Conclusion

The future of the SAVE plan remains uncertain, but its potential end raises crucial concerns for student loan borrowers. If the plan is dismantled, many could face higher monthly payments, longer forgiveness timelines, and the return of negative amortization. These changes would have a disproportionate impact on low-income, early-career, and minority borrowers, making it even more challenging to manage student debt.

For now, borrowers should stay informed, reassess their repayment plans, and consider seeking financial advice to prepare for any potential changes to their student loan repayment options.

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