Student Loan Update: Millions of Borrowers Get to Skip Payment

Millions of borrowers will get to skip their student loan payments in July while loan servicers scramble to recalculate repayment plans.

This administrative forbearance was directed by the Biden administration for many borrowers enrolled in the SAVE (Saving on a Valuable Education) plan, a new income-driven student loan repayment plan.

SAVE is just one of the ways the White House is attempting to slash debt for borrowers across the country who needed to take out loans to finance their degrees, as the costs of higher education increase. As of May 21, the Biden administration has approved $167 billion in loan forgiveness for 4.75 million Americans.

Read more: How to Consolidate Student Loans

Starting on July 1, borrowers with only undergraduate loans on the SAVE plan will get their loan payments cut in half. Currently, monthly payments on the SAVE plan are 10 percent of borrowers’ discretionary income (calculated from the difference between their adjusted gross income and 225 percent of the U.S. Department of Health and Human Services Poverty Guideline amount for their family size), but this new move will reduce the payments to 5 percent of the discretionary income.

Graduate school loan payments will remain at 10 percent of their discretionary income and borrowers with undergrad and graduate loans will have a weighted payment.

To give loan servicers time to recalculate each repayment plan for the borrowers who will be impacted by this new formula, the U.S. Department of Education (DOE) directed loan servicers to cancel any payments requested of these borrowers for July. Impacted borrowers started receiving notices of the administrative forbearance this week, Forbes reported.

A DOE spokesperson told Newsweek via email on Thursday: “We look forward to providing millions of borrowers with lower monthly payments as part of the Biden-Harris Administration’s work to provide the most affordable student loan repayment plan ever.

“As the Department finalizes preparations with student loan servicers to implement borrowers’ new, lower monthly payments capped at 5% for undergraduate loans under the SAVE Plan, some borrowers may be placed in a brief processing forbearance to ensure they can access the full benefits of the SAVE Plan and that their new payment amounts are accurate.”

The spokesperson added: “While borrowers are in this specific forbearance, no payment is required, their interest rate will be set to 0%, and they will receive credit toward IDR forgiveness and Public Service Loan Forgiveness (PSLF).”

The Biden administration launched the SAVE plan in August 2023 and there are currently over 8 million borrowers enrolled, according to reports.

SAVE not only decreases monthly payments, but in some cases, depending on the borrowers’ discretionary income, it brings monthly payments down to $0. The DOE also does not charge any monthly interest not covered by the borrower’s payment.

Additionally, it gives low-balance borrowers early forgiveness.

“Under the SAVE plan, borrowers whose original principal balances were $12,000 or less will receive forgiveness after 120 payments (the equivalent of 10 years in repayment),” the White House explained in a statement last August. “For each additional $1,000 borrowed above that level, the plan adds an additional 12 payments (equivalent of 1 year of payments) for up to a maximum of 20 or 25 years.”

Update 6/13/24, 1:35 p.m. ET: This article has been updated with comment from the DOE.