Starting in July, millions of student loan borrowers will see a significant reduction in their monthly loan repayments.
On June 20, the U.S. Department of Education announced that, under the Biden administration’s new federal student loan program, SAVE (Saving on a Valuable Education), the monthly repayment burden will decrease from 10% to 5% of the borrower’s discretionary income starting July 1.
The repayment amount will be automatically calculated based on the borrower’s income and family size and will be individually notified.
For those holding both undergraduate and graduate student loans, the weighted average percentage will be recalculated between 5% and 10% based on the remaining principal balance, thus reducing the monthly repayment amount.
According to the department, if the recalculation of the repayment amount is not completed by July, the borrower will be placed in a repayment pause status, meaning they will not need to make payments, and no interest will accrue during this period.
Additionally, the program includes a provision that if the monthly interest exceeds the repayment amount, the excess interest will be waived, potentially shortening the repayment period.
The new policy also accelerates the loan forgiveness period. Borrowers with loans of $12,000 or less will have their remaining balance forgiven after 10 years of payments. For loans exceeding $12,000, the repayment period will increase by one year for every additional $1,000 borrowed. Previously, a 20-year repayment period was required for loan forgiveness.
The Department of Education expects that around 8 million borrowers will benefit from reduced monthly repayments due to this new measure, with more than half expected to see their monthly repayments eliminated entirely.
The Biden administration had implemented a student loan forgiveness program, but when the Supreme Court blocked it, they proceeded with various loan forgiveness policies since February. To date, over 410,000 people have had $5.5 billion in loans forgiven.
BY NICOLE CHANG, YOUNGNAM KIM [chang.nicole@koreadaily.com]
