Millions of borrowers in Biden savings plan will start making payments under new settlement
The American Enterprise Institute (AEI) recently released its latest analysis of federal student loan data: In addition to the 5.5 million borrowers currently in default, another 3.7 million borrowers are more than 270 days past due and on the verge of default. Another 2.7 million borrowers are in the early stages of delinquency. A total of about 12 million borrowers are worryingly behind on their loans.
Transcript:
Host Scott Detrow:
There’s big news today for millions of federal student loan borrowers. The U.S. Department of Education said it has reached a proposed settlement. That would end a Biden-era repayment plan that has been delayed in court for more than a year. NPR’s Cory Turner has been following this story and joins us now. Hi Corey.
COREY TURNER, BYLINE: Hello, everyone.
DETROW: Before we get into the settlement news, remind us what this repayment plan was and why it ended up in court.
Turner: Yes. This is the Savings for Value Education program, but is better known as SAVE. This is the most flexible and generous of all income-driven repayment plans. It promises fast loan forgiveness and monthly payments as low as $0 for low-income borrowers. But it turned out, Scott, that it was so generous that Republican state attorneys general sued the Biden administration, arguing in court that it was too generous, and if Congress wanted to enact such a program, it would.
So SAVE has been in legal trouble ever since. But now, you know, President Trump’s Department of Education agrees with those Republican attorneys general, so they seem to have a deal. “American taxpayers can now rest assured that they will no longer be forced to serve as collateral for illegal and irresponsible student loan policies,” Nicholas Kent, deputy secretary of the U.S. Department of Education, said in a statement today announcing the proposed settlement.
DETROW: There are probably a lot of people who are in the SAVE program. What do they need to know?
TURNER: Well, they get along great. About 7 million borrowers remain in SAVE. So this agreement is a big deal, pending court approval. It’s also worth mentioning that because of the legal woes I just mentioned, many of these borrowers didn’t have to make payments for years, during which time they didn’t have to make payments. But this comes after a long pause in payments due to the pandemic. However, not only will this be a financial burden for many borrowers, it will also be a significant logistical challenge for the servicing companies that manage federal student loan portfolios.
I spoke with Scott Buchanan earlier today. He’s the head of the Student Loan Servicing Alliance, and he told me it’s going to be bumpy. These are his words. SAVE borrowers are going to have a lot of questions, he said. They need significant help to resume repayments. Part of the problem here is that the options they have available are a bit vague. The Republicans’ Big Beauty Act creates two new repayment plans, but they won’t be available until July, which is too late for SAVE borrowers now. Meanwhile, borrower advocates are sounding the alarm today. This is Persis Yu and the Protect Borrowers team.
PERSIS YU: The reality is that the SAVE program was created because other programs were unaffordable for millions of borrowers. Many borrowers will be stuck making decisions about whether to continue repaying their loans or supporting their families.
TURNER: Scott, this settlement comes at a time when millions of other borrowers are already seriously behind on their loans.
DETROW: Yes. Do we know what really happened there?
Turner: Yes. About 12 million borrowers are either actually behind on payments or already in default, according to the latest data from the Department of Education. That represents at least a quarter of all federal student loan borrowers. Everyone I talk to on both sides of the aisle says this is a crisis. Now we are discussing how to get these 7 million SAVE borrowers, many of whom are low-income, back on their payments. For the sector, obviously for these borrowers, this is going to be an incredible test. My best advice to these borrowers right now is to go to Studentaid.gov and start reading about other repayment plans so you know what your options are.
DETROW: That’s NPR education reporter Cory Turner. Thank you so much.
Turner: You’re welcome.
(SOUNDBITE OF FREDDY GIBBS AND MADLIB’S SONG “GAT D***”)
