What does the end of the Biden-era student loan program mean for borrowers?

Amna Nawaz:

The Trump administration has reached a joint settlement with seven states that would effectively shut down a key student loan relief program under Biden.

John Yang takes a look at the reasons for the change and what it could mean for borrowers in the coming months – John.

Jun Yang:

Safe, this is called saving in valuable education, or conservation. It bases borrowers’ monthly payments on their income and provides a faster path to loan cancellation.

Trump’s Department of Education doesn’t like it. Instead, many other payment options have been created. And with this proposed settlement of the lawsuit brought by seven Republican states, they are ending it.

But what about the nearly seven million people currently enrolled in it?

Danielle Douglas Gabriel is the national higher education correspondent for The Washington Post.

Danielle, let’s start with SAVE, this program that’s going away, or if the judge agrees, going away. What made it so attractive and what made it so generous to borrowers?

Daniel Douglas Gabriel, The Washington Post:

So, John, first of all, thank you for having me.

With Savings, it is an income-based repayment plan, which is one of four plans offered by the government. What makes it different from other existing income-driven payment plans, some of which date back two decades, is that Savings has an upper limit on how much of your disposable income is counted in calculating your monthly bill.

So, for many people, this means they’ve seen their monthly payments drop quite significantly. It also has a faster path to debt cancellation, meaning if you borrow less than $12,000 from the government and repay it for 10 years, your remaining balance will be forgiven.

When it was implemented again in October of 2023, about 400,000 people saw their student loans forgiven as a result of the ruling. Well, this rescission provision became a point of contention for the states that filed this suit several months later.

They also said the Biden administration exceeded its authority by offering debt relief without congressional approval.

Jun Yang:

Tell us a little bit about the path that this lawsuit took, because it prevented the program from being fully implemented, right?

Daniel Douglas Gabriel:

Yes.

So there were two cases initially, and the one that was brought or led by the state of Missouri and the other six states is the one that had the biggest impact on the program, which is that it effectively shut down the whole thing.

Essentially, the Biden administration implemented the SAVE program in phases, one phase of which was initially shut down by the courts, but the rest of the phase was allowed to move forward. But this particular case closed the whole matter. There was an injunction that was very far – far reaching.

As a result, the department placed about eight million people who were originally enrolled in the program on a form of forgiveness, where their payments were deferred and interest did not accrue on their loans.

The problem is that for people who wanted to get into other income-driven repayment plans, there was — as a result of the injunction, a lot of those plans were shut down for months because the demand for them was all part of the savings. It also included memorization. So the ministry had to reshape that and figure out how best to get people involved in these programs without going to court.

Now, this has created a lot of chaos when it comes to people trying to figure out what is the best way to repay their loans.

Jun Yang:

Why doesn’t the Trump administration like this? What is their objection?

Daniel Douglas Gabriel:

I think the student loan forgiveness component is definitely a big part of the objection.

There’s been an ideological battle among conservatives, who feel that student loan forgiveness, particularly far-reaching student loan forgiveness, is actually an insult to people who didn’t go to college. They should not have to foot the bill for people who pursued a college education.

Meanwhile, there are still existing loan forgiveness programs, such as public service loan forgiveness that benefits teachers, social workers, and police officers. So these things are safe. But this particular plan was a distinct part of the Biden administration’s campaign to reform the student loan system.

And I also think she suffered from the kind of lingering anti-student loan forgiveness angst that the program that the Supreme Court really struck down focused on. Although this is very different from that broad program – that far-reaching program that was struck down by the court, they are both viewed through the same lens.

Unfortunately, what this means for many borrowers who took advantage of the savings program is that they will no longer have this generous repayment option.

Jun Yang:

Under this proposed settlement, what is the timeline? When will this program be released?

Daniel Douglas Gabriel:

That’s the big question, John. Everyone is trying to figure out exactly when.

Now, keep in mind that Congress’s “One Big Beautiful Bill Act” passed this summer was actually wind-down. Republicans in Congress have said that by 2028, if you’re in the conservation plan, you should get out. It’s over.

Now, what we don’t know and what this settlement didn’t explicitly state is, what is the timeline? So, I really think that’s something we’re going to have to continue to pay attention to as it plays out in the courts. The Ministry of Education will then also form a committee of experts to clarify the details of how to end this program.

Jun Yang:

I talked to a lot of people on this program. What does this decision or agreement do to them and others in the program?

Daniel Douglas Gabriel:

I think this adds a lot of confusion and a lot of uncertainty, especially since this settlement did not provide a clear and specific timetable.

I spoke to a borrower who had already switched from SAVE to one of the other income-based plans, a plan that was much more expensive. This woman, a teacher, saw her wages rise from $373 a month to $875.

Now, on top of increasing her health insurance at the same time, and having to cover her mortgage and other living expenses, it’s a real stressor. It’s a real adjustment that many Americans need to make at a time when people are worried about inflation, gas prices and grocery prices.

So I think that’s a big adjustment for borrowers. Hopefully there will be guidance to help them out of this. What no one certainly wants to see is a huge rise in delinquencies and defaults on these loans, which could really hurt people’s financial lives.

Jun Yang:

Daniel Douglas Gabriel of The Washington Post, thank you very much.

Daniel Douglas Gabriel:

Thank you.