The $1.6 trillion student loan market has been in a state of flux since the onset of the pandemic in 2020, with numerous payment pauses, interest waivers and failed forgiveness schemes. Many of the previous administration’s attempts to forgive loan balances have been halted by the courts, and most of the temporary deferments have ended or are ending soon.
The recently passed budget reconciliation bill also includes changes, of which borrowers should be aware. One program in particular, the Saving on a Valuable Education plan (Save) could cause loan balances to balloon if participants fail to act.
Former President Joe Biden made student debt forgiveness a central element of his 2020 campaign. This effort was destined to fail for two reasons. First, it was manifestly unfair to the millions of Americans who had dutifully repaid their own obligations and would establish a negative precedent for future students. Secondly, many of the former president’s assistance plans were struck down or delayed by federal courts as a usurpation of congressional authority.
One such attempt was the Save plan, which attracted 7.7 million borrowers with the promise of lower payments and partial loan reductions. While court challenges continue, participants in the plan have been allowed to hold off on making payments while interest accrual has been waived. That is now changing due to recent legislation.
The big bill that shall not be named, signed into law on July 4, includes major changes to the student aid infrastructure. It eliminates a farrago of prior income based alternatives with acronyms like SAVE, ICR, PAYE and REPAYE, and establishes two primary repayment plans slated to phase in between now and July 1, 2028.