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About 7 million federal student loan borrowers are still enrolled in defunct Biden administration-era repayment plans, Nicholas Kent, a senior official at the U.S. Department of Education, told CNBC on Thursday.
Kent, the agency’s undersecretary for education, said that by maintaining the Save on Valuable Education (SAVE) plan, these borrowers are increasing their debt and are not moving toward student loan forgiveness.
“It’s a problem for the borrower,” he said. “They don’t see the benefit of paying.”
About 300,000 student loan borrowers have left SAVE in recent weeks, Kent said. Millions of borrowers who remain in these plans are at risk of being hit with payments they can’t make and ultimately defaulting if the plans expire.
According to the Congressional Research Service, more than 42 million Americans have student loans, totaling more than $1.6 trillion in debt.
“SAVE renters must move.”
The Biden administration introduced SAVE in 2023, touting it as “the most affordable repayment plan ever created.” Under the program, many borrowers expected their monthly bills to be cut in half. But Republican-led legal challenges quickly put the plan on hold.
Starting in July 2024, millions of student loan borrowers will be placed on repayment suspension while legal challenges unfold, meaning they will no longer have to make monthly payments. A federal appeals court finally ordered SAVE to end earlier this year.
Until recently, the Trump administration had allowed borrowers to maintain a payment suspension. Officials announced in late March that starting July 1, SAVE registrants will have about 90 days to cancel and choose a new repayment option.
“SAVE borrowers will need to relocate,” Kent told CNBC.
Borrowers will face different deadlines to exit SAVE
Kent said student loan borrowers enrolled in SAVE will have different deadlines to exit the program.
The Department of Education previously said that after borrowers receive a notice from their student loan servicer, they should be prepared for a 90-day grace period during which they can enroll in another plan. But those announcements could be made on different days throughout the summer, Kent said, adding, “We don’t want to overwhelm servicers.”
SAVE borrowers looking for an exit could join an already long queue.
As of the end of April, more than 530,000 federal student loan borrowers who had applied for new repayment plans were on the waiting list, according to recent court filings.
If the Borrower does not leave SAVE
Higher education expert Mark Kantrowitz said borrowers who remain in the SAVE suspension period will find themselves in debt with more interest.
According to Kantrowitz’s calculations, the typical SAVE enrollee has a loan balance of about $57,000 and an interest rate of 6.7%. He calculated that this means their debt has already increased by more than $2,500 since interest accrual resumed in August.
SAVE student loan borrowers also have not made any progress toward debt forgiveness under the repayment plans or terms of Public Service Loan Forgiveness.
If the borrower remains in the plan past the deadline, the Department of Education will move the borrower into either a standard repayment plan or a graduated standard repayment plan. Kantrowitz said many borrowers will no longer be able to afford the fixed fees of these plans.
“If you miss these payments, your loan will become delinquent and you will default after one year of delinquency,” he said.
There are tools available online to help you determine how much your monthly bill will be based on various student loan repayment plans.
