WASHINGTON (NEXSTAR) — Soon, millions of borrowers are going to have to start paying back their student loans again. The Biden administration is touting a new plan they say will help lower monthly payments and bring borrowers closer to forgiveness.
On Tuesday, the Department of Education launched the “SAVE Plan,” which Education Under Secretary James Kvaal calls the most affordable student loan repayment plan ever.
“It’s a big deal,” Kvaal said.
Under the SAVE Plan, monthly payments will be capped at 5% of a borrower’s discretionary income. For some people, that means payments will drop to $0 a month.
“It really is a dramatic difference in the amount borrowers are going to be expected to pay,” Kvaal said.
Also, students who borrowed $12,000 or less will have their debt completely forgiven after 10 years of payments. Every $1,000 past that will add another year of payments until it’s forgiven.
Another change under the plan is that borrowers who make their monthly payments won’t accrue interest.
“So that means if you are making your student loan payments, you’re not going to see your loan grow and grow anyway as interest accumulates,” Kvaal said.
Even with this new plan, after a three-year pause some economists are worried about payments re-starting in October.
Bankrate Analyst Sarah Foster says they found in a study that nearly half of borrowers think student loan debt is a national crisis. It also found around half think the federal government isn’t doing enough to help.
“Considering just how high interest rates are right now, and continuing inflation is also a problem, it’s just going to put these cash strapped Americans in an even more difficult spot,” Foster said.
Though she thinks the SAVE Plan is a good step, she says these loans are still holding a lot of people back financially.
“Students with debt, when they graduate, they delay buying homes, having children, getting married. So it is a major concern,” Foster said.
The Biden administration says they are working on further forgiveness, but they think this plan will make a difference for those who apply.
“When people see the impact it would have on their bills, there’s a lot of relief,” Kvaal said.
Borrowers can apply for the SAVE Plan at StudentAid.gov. The Education Department advises applying as soon as possible, because it may take a few weeks to process.