The Biden administration is canceling student loans for an additional 206,000 borrowers as part of a new repayment plan that provides a path to faster forgiveness.
The Department of Education announced the latest cancellations on Friday in an update on the progress of the SAVE plan.
More people are reaching 10 years of repayment and are eligible to cancel their student loans, with some loans now having a new exit line 10 years earlier than previous borrowers.
However, two new lawsuits questioning the legality of the plan have cast a shadow over its cancellation. Two Republican-led groups of states, led by Kansas and Missouri, recently filed a federal lawsuit accusing the Biden administration of overstepping its authority in creating the repayment option.
“From day one in my administration, I promised to fight to make higher education a ticket to the middle class, not a barrier to opportunity,” President Joe Biden said in a statement. “No matter how many times Republicans try to stop us, I will never stop working to cancel student debt.”
In this move, the Department of Education approved cancellations for approximately 360,000 borrowers through new repayment plans totaling $4.8 billion.
The SAVE plan is the latest version of a federal repayment plan that has been offered for decades, but with more generous terms.
Congress created the first income-based repayment option in the 1990s for people struggling to pay for standard plans. They limited monthly payments to a certain percentage of income and canceled unpaid debts after 25 years. Similar plans have since been added, allowing cancellation after as little as 20 years.
Arguing that today’s borrowers need more help, the Biden administration has consolidated most of these plans into a single repayment option with more generous terms.
SAVE (Savings for Valuable Education) plans allow more borrowers to pay nothing until their income rises above a certain limit. It also lowers payments than past plans, eliminates interest increases, and eliminates outstanding debt in as little as 10 years.
Biden announced the plan in 2022 alongside a broader proposal for one-time cancellations of up to $20,000 for more than 40 million people. Although the one-time cancellation was struck down by the Supreme Court, the SAVE plan moved forward and initially escaped legal scrutiny.
The repayment plan began accepting registrations last fall, with some provisions expected to be phased in later this year. Although the faster path to release was scheduled to begin this summer, the Biden administration rushed the benefit earlier this year, announcing forgiveness for 153,000 borrowers who had reached 10 years of payments. .
Almost 8 million Americans are enrolled in the system, and 4.5 million of them pay nothing because their incomes are low.
Education Secretary Miguel Cardona said in a call with reporters that the plan is a relief measure and will prevent borrowers from defaulting on their loans.
“Now they have some money back in their pockets instead of bills that often conflicted with basic needs like groceries and health care,” he said.
Under the plan, borrowers who originally borrowed $12,000 or less would be eligible for forgiveness after 10 years. Those who have withdrawn more than $12,000 can receive a cancellation, but with a longer deadline. For every $1,000 borrowed over $12,000, there is an additional year of payments added on top of the 10 years.
The Biden administration says it aims to help those who need it most. It’s counterintuitive, but people with smaller student loan balances tend to have a harder time. The problem is being driven by the millions of Americans who take out student loans and are unable to complete their degrees, leaving them with the downside of debt without the upside of increased income.
Republican attorneys general from 18 states are seeking to reverse the plan and halt further cancellations in two separate lawsuits.
They argue that the SAVE plan exceeds Biden’s authority and makes it difficult for states to hire staff. They argue the plan undermines another cancellation program that encourages careers in the civil service.
It’s unclear how the lawsuit will affect loans that have already been cancelled. “It is unrealistic to believe that the loan forgiveness incurred during this litigation will ever be reversed,” court documents filed by the Kansas attorney general say.
The lawsuit does not directly address the issue, and the attorney general did not immediately respond to a request from The Associated Press.
The Department of Education said Congress gave the agency authority in 1993 to define the terms of income-based payment plans, and that authority has been used in the past.
Along with the repayment plan, Biden is also trying again for one-time student loan cancellation.
He visited Wisconsin on Monday to highlight his proposal to reduce or cancel loans for more than 30 million borrowers in five categories.
The program is designed to help borrowers who are behind on large amounts of interest, have old loans, participate in low-cost programs, or are facing difficulty repaying their student loans due to other hardships. The purpose is It would also cancel loans for people who qualify for other forgiveness programs but don’t apply.
The Biden administration has said it will accelerate some of the proposals, with plans to begin forgiving unpaid interest for millions of borrowers starting this fall. Conservative opponents have also threatened to challenge the plan.
On Friday, the administration also announced it would terminate loans for 65,000 borrowers who were enrolled in previous income-based repayment plans and have reached the forgiveness finish line. It also announced cancellation of 5,000 additional borrowers through the Public Service Loan Forgiveness Program.
The Biden administration says it is now providing a total of $153 billion in loan relief to 4.3 million people through various programs.
