Here’s What Students Need to Know About Biden’s New Income-Driven Repayment Plan

• President Joe Biden first revealed a new income-driven repayment plan in August 2022.
• The plan is the most affordable repayment plan for most borrowers.
• Biden's administration has been tinkering with the specifics of a new IDR plan since late 2021.
• The new plan is called the Saving on a Valuable Education (SAVE) plan.

The federal government recently adopted a new student loan repayment plan that promises a radical shift in how borrowers can repay their loans.

President Joe Biden's administration submitted a revamped income-driven repayment (IDR) plan to the Federal Register in January 2023. The proposal, while lengthy, has a clear goal: simplify the four existing IDR plans to create a clear "best" solution for federal student loan borrowers.

The new plan is dubbed the Saving on a Valuable Education (SAVE) plan.

The language, however, is anything but simple.

Let's break down what this new IDR plan does and how it can save borrowers hundreds in monthly payments.

Questions

• What is an IDR plan?
• How does this new IDR plan differ from existing repayment plans?
• How low can payments get?
• How long will it take to pay off debt?
• When can borrowers enroll?
• Can you give an example of monthly payments?
• Can - and should - borrowers switch to this new plan?
• How does this plan differ from previous proposals from Biden's administration?
• What do advocates think about the new proposal?

What Is an IDR Plan?

Federal student loan borrowers, by default, have 10 years to pay back their loans. Monthly payments depend on the total amount owed, with interest tacked on depending on the balance.

For many borrowers, that monthly payment may be unaffordable. Whether because the balance has ballooned or because they don't have a high-paying job, it may be impossible for many to make the required payments.

That's where IDR comes in.

Instead of a monthly payment based on the amount owed, IDR monthly payments are a percentage of a borrower's "discretionary income." Federal Student Aid calculates discretionary income differently depending on each IDR plan — there are four — but it's always determined using the federal poverty level. The different plans also charge different percentages of discretionary income.

In some cases, a borrower may qualify for $0 monthly payments if they fall below a certain threshold.

Unlike the standard repayment plan, IDR borrowers don't have to repay the entire debt balance. Borrowers who make 20-25 years of qualifying payments — depending on which IDR plan and what the loans were used for — can have their remaining debt erased, no matter the balance.

How Does This New IDR Plan Differ From Existing Repayment Plans?

Biden's administration heavily amended the Revised Pay As You Earn (REPAYE) repayment plan, which is one of the four existing IDR plans.

To understand how this new plan will differ, it's best to know how the existing plans differ.

Confused?

That’s part of the reason that Biden’s action not only amends the REPAYE plan, but also effectively sunsets some of the existing plans. Once the new plan goes into effect, borrowers will no longer be able to enroll into the PAYE or ICR plans unless they are Parent PLUS loan borrowers consolidating into ICR. Only those with limited circumstances will be able to enroll in IBR.

The new regulations raise the amount of income not counted as discretionary income from 150% of the federal poverty guideline to 225%.

If the loan balance comprises only undergraduate student loans, then the borrower pays just 5% of their discretionary income under the new REPAYE plan, which has been renamed the Saving on a Valuable Education (SAVE) plan.

If there are graduate loans mixed in, then the borrower pays between 5% and 10%. The exact percentage is calculated using a weighted scale depending on how much of the debt is undergrad debt versus graduate debt.

How Low Can Payments Get?

Like existing plans, borrowers can qualify for $0 monthly payments if their annual income is low enough.

The threshold depends on the federal poverty guidelines each year and family size.

Because all income under 225% of the federal poverty guideline is excluded in discretionary income, households with the following salaries in most states can qualify for $0 monthly payments under the 2023 guidelines:

Alaska and Hawaii have slightly higher federal poverty guidelines.

The Biden administration announced in November 2023 that of the 5.5 million borrowers enrolled in SAVE at the time, 2.9 million had $0 monthly payments.

How Long Will It Take to Pay Off Debt?

The timeline for forgiveness will remain 20 years of qualifying payments.

Technically, it's 240 months of qualifying payments. That means if a borrower takes a year of forbearance, for example, the time in forbearance will not count. It will take that borrower 21 years for their debt to be erased.

There is an exception to this timeline.

The proposal would also grant complete forgiveness for borrowers who make 10 years' worth of payments if their original loan balance was $12,000 or less.

When Can Borrowers Enroll?

Borrowers can already take advantage of some of the most critical portions of the new SAVE plan.

ED released the regulations defining the SAVE plan on July 10, 2023, in the Federal Register. While the full plan won’t be available until July 1, 2024, some aspects of the plan went into effect on July 30, 2023. That includes increasing the income exemption to 225% of the poverty guideline and not charging accrued interest on a loan when a borrower makes a payment under IDR.

Reducing the charge to just 5% of a borrower’s discretionary income, however, won’t go into effect until 2024, according to the filing.

ED released the official application for the SAVE plan on Aug. 22, 2023.

The application came just in time for the resumption of student loan payments. A three-year pause on interest accrual ended in September 2023.

Approximately 5.5 million borrowers were enrolled in the SAVE plan as of November 2023, according to the Department of Education.

It’s important to note that Parent PLUS borrowers will not be able to enroll in the SAVE plan as proposed.

Can You Give an Example of Monthly Payments?

For this exercise, let's compare the new SAVE plan to the existing REPAYE plan. We'll also use a few different income levels to exemplify the differences.

Just assume the borrower only has undergraduate loans and lives in a solo household where the federal poverty line is pegged at $14,580, which is the 2023 standard for all states except Alaska and Hawaii.

Can - and Should - Borrowers Switch to This New Plan?

In short: yes and yes.

Carolina Rodriguez, director of the Education Debt Consumer Assistance Program, told BestColleges that this new plan is the best option for students hoping for debt forgiveness 20 years down the line. This plan is also the best option for those who hope to have debt erased through the Public Service Loan Forgiveness (PSLF) program.

Additionally, those already enrolled in an IDR plan should not be worried about losing progress on their own timeline to forgiveness.

Rodriguez said borrowers should be able to maintain any credit they’ve earned toward any forgiveness program if they switch.

The easiest way to switch plans is through the Federal Student Aid website, she said. Borrowers may also call their loan servicer to enroll into or switch IDR plans if they prefer that option.

“The application can take as little as 15 minutes to complete,” Rodriguez said.

ED stated that borrowers enrolled in the existing REPAYE plan are automatically enrolled in the SAVE plan.

How Does This Plan Differ From Previous Proposals from Biden's Administration?

It's been a long road to arrive at this new IDR plan.

ED officials first met with higher education stakeholders in late 2021 to develop a new IDR plan in a process called negotiated rulemaking. However, most negotiators — which included student borrower advocates and institutional representatives — were unhappy with the department's December 2021 proposal, saying it didn't go far enough to create affordable monthly payments.

That 2021 proposal would have protected all income below 200% of the federal poverty line. Borrowers would have to pay 5% of their discretionary income between 200% and 300% of the line and 10% of income above 300%.

Negotiators were concerned this tiered structure would create confusion.

The plan also completely excluded all graduate student debt, perturbing negotiators. The new plan, meanwhile, includes graduate debt but forces borrowers to pay a higher percentage of their discretionary income on that debt.

What Do Advocates Think About the New Proposal?

ED's latest proposal is more what advocates had in mind.

BestColleges spoke with six student loan debt experts in May to understand what an "ideal" IDR plan would look like. The newest proposal comes closer to meeting their vision for an affordable repayment option.

Including graduate student debt is in line with what advocates hoped for.

Increasing the discretionary income cutoff to 225% is also a step in the right direction. Persis Yu of the Student Borrower Protection Center said the cutoff would ideally be 400%, but the proposal gets closer to the 250-300% most borrowers need to sustain a living wage.

When it comes to the percentage of discretionary income charged, ED surpassed expectations. Tiara Moultrie of the Century Foundation said 8% would be an acceptable rate, while ED's proposal brings it down to 5% for undergraduate loans.

ED's proposal does not, however, address concerns about the timeline for forgiveness. Advocates like Bethany Lilly of the Arc of the United States wanted that timeline to decrease to 10-12 years, but it will stay at 20 years.