Will Student Loan Borrowers Get Relief Under Plan B?

Read Time: 4 minutes

It was last summer when things suddenly looked bleak for student borrowers. A $400 billion student loan relief plan was shot down by the Supreme Court and what help would come next – if any – was unclear.

But we now have new movement in Washington, and for several million student loan borrowers the so-called “Plan B” approach can mean important savings.

Some 44 million people owe $1.6 trillion in federal student debt. That’s an average of $36,363 per borrower, but how much an individual owes often depends on the borrower’s degree.

A report just issued by the Mission Square Research Institute estimates that the average student loan amounts to $12,785 for associate degree holders, $23,052 for those with a bachelor’s degree, $37,598 for graduates with a master’s degree, and $70,404 for a doctoral degree.

The $400 billion relief package undertaken by the Biden Administration would have reduced student debt levels for millions of borrowers and even eliminated many outstanding loans. About a quarter of all outstanding federal student debt would have been canceled.

The catch was that the original Biden approach – think of it as Plan A – assumed that the Administration had the authority under federal law to make such reductions. However, when the matter was challenged, the Supreme Court ruled that such authority was reserved for Congress.

The result was that student loan payments began once again in the Fall.

With Plan A in the dumper, the Biden Administration has moved on to Plan B. It’s a smaller program, but “small” is a relative term: so far we’re talking about $138 billion and counting.

More importantly, the new effort means millions of student borrowers are likely to see lower monthly costs and smaller loan balances.

How Plan B Works

Rather than one huge plan, Plan B works around the edges of the mammoth student loan program. The result is that while a borrower may not qualify for help under one Plan B initiative, there can be benefits elsewhere.

Plan B – now generally known as the SAVE plan – has these main features:

Income Counts. The SAVE plan is based on an income-driven repayment (IDR) calculation — the more you earn, the more you pay and vice versa. Importantly, in many cases, borrowers will see lower required monthly payments.

According to the government, “borrowers on the SAVE plan will have their payments on undergraduate loans cut in half (reduced from 10% to 5% of income above 225% of the poverty line). Borrowers who have undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income based on the original principal balances of their loans taken to attend school.”

The clock is running. While new student loans largely have a ten-year term, many existing loans have been outstanding far longer. A 2023 study by The Washington Post found that 47,000 borrowers nationwide had student loans outstanding for at least 40 years!

Under the SAVE plan, most loans will have a 10-year term, especially for loans associated with community colleges. According to the White House, “85 percent of future community college borrowers will be debt-free within 10 years” and many other borrowers will also be eligible for assistance.

Negative Amortization. It has been possible with student loans to have the debt grow beyond the original principal amount because monthly interest is more than the monthly payment, a situation known as “negative amortization.” 

Under the SAVE plan, as the government explains, the new plan “eliminates 100% of remaining monthly interest for both subsidized and unsubsidized loans after you make a full scheduled payment. This means that if you make your monthly payment, your loan balance won’t grow due to unpaid interest that accrued since your last payment. For example: If $50 in interest accumulates each month and you have a $30 scheduled payment, the remaining $20 would not be charged once you make your monthly payment on time.”

Borrower Obligations. Whether under the new rules or the old ones, student debt must be repaid as the rules require. This means borrowers must make monthly payments on time and in full to avoid credit score hits and other penalties.

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Could Plan B Also Wind Up in Court?

In the same way that the original Biden plan was taken to court and stopped, the same thing could happen with Plan B.

For example, writing in the Washington Free Beacon, Kansas Attorney General Kris W. Kobach said in February that the “Supreme Court has made clear in a series of precedents that Congress is presumed to reserve major policy questions for itself. If such major policy decisions are being delegated to an agency, Congress needs to say so very clearly. Forgiving over $138 billion in student loans is a major policy question, and Congress never suggested that it was giving such massive authority to the executive branch.”

Might the Supreme Court rule against Plan B? No one knows. However, Plan B has a different legal basis that Plan A, making it difficult to successfully challenge in court. 

“I wouldn’t say that it’s impossible to challenge these loan cancellation efforts,” said Michael Poon, an attorney for the Pacific Legal Foundation. Speaking to The Hill in Washington, Poon added that “just like in the original loan cancellation effort, it really depends on there being people or businesses who are affected and being willing to stand up and stick their neck out on an issue that can make them unpopular. It’s a rare thing.”

Do You Qualify for Plan B?

To see if you qualify for the new Save program, visit https://studentaid.gov/idr/ if you have a federal student loan.

Peter G. Miller

Peter G. Miller is a nationally-syndicated columnist, the author of seven books published originally by Harper & Row (including one with a co-author), and has contributed to leading online sites and major print publications. He has appeared on numerous media outlets including the Today Show, Oprah!, CNN, and NPR.

Peter has been an accredited correspondent on Capitol Hill and a member of the White House Correspondents Association. He has served with the District of Columbia National Guard and holds both BA and MS degrees from The American University in Washington, DC. View Peter on LinkedIn.