Biden administration announces another round of loan cancellation under new repayment plan
WASHINGTON — The Biden administration is canceling student loans for an additional 206,000 borrowers as part of a new repayment plan that offers a faster route to forgiveness.
The Ministry of Education announced the latest round of cancellations on Friday in an update on the progress of the SAVE plan. More and more people are becoming eligible for student loan forgiveness as they complete 10 years of payments, a new finish line for some loans that is 10 years earlier than what borrowers have faced in the past.
Casting a shadow over the cancellations, however, are two new lawsuits challenging the legality of the plan. Two groups of Republican-led states, led by Kansas and Missouri, recently filed federal lawsuits arguing that the Biden administration overstepped its authority by creating the refund option.
“From day one of my administration, I have pledged to fight to ensure that higher education is a ticket to the middle class, not a barrier to opportunity,” President Joe Biden said in a statement. “I will never stop working to cancel student debt — no matter how many times Republican elected officials try to stop us.”
With the latest action, the Department of Education has now approved cancellations for approximately 360,000 borrowers through the new repayment plan, totaling $4.8 billion.
The SAVE Plan is an updated version of a federal repayment plan that has been offered for decades, but with more generous terms.
Congress created the first income-driven repayment option in the 1990s for people who struggled to afford payments under standard plans. It limited monthly payments to a percentage of their income and canceled all unpaid debts after 25 years. Similar plans were added later, allowing cancellation in just 20 years.
Arguing that current borrowers need even more help, the Biden administration has combined most of these plans into a single repayment option with more lenient terms.
The SAVE (Saving on a Valuable Education) plan allows more borrowers to pay nothing until their income rises above certain limits. It also lowers payments more than previous plans, eliminates interest rate growth, and forgives unpaid debt in just 10 years.
Biden announced the plan in 2022 alongside his broader proposal for a one-time cancellation of up to $20,000 for more than 40 million people. While the one-time cancellation was rejected by the Supreme Court, the SAVE plan moved forward and initially escaped legal scrutiny.
The repayment plan opened for enrollment last fall, and certain provisions will be phased in later this year. The Faster Path to Cancellation was one of the paths that was set to launch this summer, but the Biden administration accelerated that benefit early this year by announcing forgiveness for 153,000 borrowers who had made 10 years of payments.
Nearly 8 million Americans have joined the plan, including 4.5 million who pay nothing because they have a lower income.
Speaking to reporters, Education Secretary Miguel Cardona said the plan provides relief and prevents borrowers from falling behind on their loans.
“Now they have some money back in their pockets, instead of a bill that too often competed with basic needs like groceries and health care,” he said.
Under the plan, borrowers who originally borrowed $12,000 or less will be eligible for forgiveness after 10 years. Those who withdrew more than $12,000 may receive cancellation, but on a longer timeline. For every $1,000 you borrow above $12,000, an additional year of payments is added on top of the ten years.
The Biden administration says it is designed to help those who need it most. Counterintuitively, people with smaller student loan balances often have a harder time. It’s caused by millions of Americans taking out student loans but not completing their studies, leaving them with the downside of debt without the downside of higher income.
In two separate lawsuits, Republican attorneys general in 18 states are calling for the plan to be rejected and a halt to further cancellations. They say the SAVE Plan goes beyond Biden’s authority and makes it harder for states to recruit workers. They say the plan undermines a separate cancellation program that encourages careers in public service.
It is unclear what the lawsuits could mean for loans that have already been canceled. A court document filed by the Kansas attorney general says it is “unrealistic to think that any loan forgiveness that occurs during this lawsuit will ever be recovered.”
The lawsuits do not directly address the question, and attorneys general did not immediately respond to an Associated Press request.
The Department of Education says Congress gave the agency the power to define the terms of income-driven payment plans in 1993, and that authority has been used in the past.
Along with the repayment plan, Biden is again trying to achieve a one-time student loan cancellation. During a visit to Wisconsin on Monday, he highlighted a proposal to reduce or cancel loans for more than 30 million borrowers in five categories.
It is intended to help borrowers with large amounts of unpaid interest, people with older loans, people who have been in low-value programs and people facing other hardships that prevent them from paying back their student loans. It would also cancel loans for people who qualify for other forgiveness programs but haven’t applied.
The Biden administration says it will accelerate parts of the proposal, with plans to start waiving unpaid interest for millions of borrowers starting this fall. Conservative opponents have threatened to challenge that plan as well.
On Friday, the government also said it is canceling loans for 65,000 borrowers enrolled in older, income-driven repayment plans who are reaching the finish line for forgiveness. It also announced cancellations for an additional 5,000 borrowers through the Public Service Loan Forgiveness program.
Through a variety of programs, the Biden administration says it has now provided loan relief to 4.3 million people, totaling $153 billion.
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