What to Know About Biden's Student Loan Relief Plan Now That Interest Has Resumed

Interest on federal student loans restarted on Friday. But a new income-driven repayment plan caps payments at 5% of a borrower's discretionary income.

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Expertise Personal finance, government and policy, consumer affairs
Dan Avery
3 min read
Student Loan Relief Ahead sign

President Joe Biden said using the Higher Education Act of 1965 is "the best path that remains" to address widespread student debt relief.

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After a pause of more than three years, interest on federal student loans resumed Friday and payments will begin again in October.

The US Supreme Court struck down President Joe Biden's original plan for student loan forgiveness in June, but he's already laid out a new multipronged approach.

Part of that strategy is a new income-driven repayment program, the Saving on a Valuable Education (SAVE) plan. According to the Department of Education, many borrowers will see their monthly payments cut in half with the SAVE plan, and some will have no monthly bill at all.  

Here's what to know about the administration's new strategy for student loan relief, including who it would help, when it could go into effect and what else might be in the works.

For more on student loans, find out when payments will resume, who your student loan provider is and what experts say borrowers should do next.

An 'on-ramp' transition period

To aid the more than 43 million Americans facing the return of loan payments, the Biden administration has announced a yearlong "on-ramp" period, in which borrowers who miss monthly payments will not be considered delinquent, placed in default, reported to credit bureaus or referred to debt collection agencies.

Interest will accrue during the period, however, which will run from Oct. 1, 2023, to Sept. 30, 2024.

The SAVE plan

Introduced by Secretary of Education Miguel Cardona, the Saving on a Valuable Education plan replaces the current Revised Pay-As-You-Earn plan.

Like REPAYE, the SAVE plan is an income-driven repayment plan, based on salary and family size. But payments are capped at 5% of a borrower's discretionary income, down from the current 10%.

Millions of Americans making less than $33,000 a year will see their payments lowered to zero dollars, Cardona said in a White House briefing, and all other borrowers will save at least $1,000 per year.

The SAVE plan will cut payments on undergraduate loans in half compared with other income-based plans, according to the Department of Education, and it ensures borrowers who keep up with payments won't see their balance ratchet up. 

If you're already on the REPAYE plan and your loan is in good standing, you'll automatically be enrolled in the SAVE plan, Cardona said.

If you aren't already enrolled, a beta application for the SAVE plan is available. The application typically takes only about 10 minutes, but you can save and continue later if you need to.

The Higher Education Act

Biden has said he will try authorizing broad education loan relief again, but this time under the auspices of the Higher Education Act of 1965, which grants the Education Department the power to "compromise, waive or release" federal student loans.

Unlike the HEROES Act, the HEA isn't dependent on a national emergency. From 2021 to 2023, roughly 615,000 borrowers had their federal student loans erased under the HEA's Public Service Loan Forgiveness Program.

Legal hurdles ahead

Biden says using the HEA for widespread forgiveness is "legally sound" and "the best path that remains to providing for as many borrowers as possible with debt relief."

But it'll be a longer process, as it requires public hearings and a feedback period. And it'll likely face a new set of legal challenges that could even come before the Supreme Court. 

There's already a lawsuit challenging the administration's plan to cancel $39 billion in federal student loans held by more than 804,000 borrowers who've been in repayment for more than 20 years. The Education Department insists the discharges are a result of corrections to how monthly payments have been counted for those under income-driven repayment plans.

But the Cato Institute and Mackinac Center for Public Policy counter that the public should be able to weigh in on such widespread forgiveness. 

"The administration cannot impose a policy like this without going through the proper channels," said Sheng Li, an attorney with the New Civil Liberties Alliance, which is representing the groups. 

For more, find out which banks with savings accounts have the best personal loans and the best home equity loans.