56K FL Borrowers Will See Student Loan Balances Wiped Out

FLORIDA — Thousands of Floridians will see their student loan balances wiped out under a new income-driven repayment plan announced by the U.S. Department of Education.

On Friday, the Education Department began notifying 804,000 borrowers who owe $39 billion that their federal student loan balances will automatically be cleared. Of those borrowers, 56,930 live in Florida. Collectively, they owe $3.036 billion.

The action applies only to borrowers enrolled in one of four income-driven repayment plans, which overall aim to lower payments for low-wage earners. The majority are borrowers enrolled in the ICR, or income-contingent repayment plan, who have been paying back their loans for decades. The average borrower in that program owes about $48,000.

Monthly payments are generally capped at 10 percent or 20 percent of the borrower’s household discretionary income. Borrowers who have made regular payments for 20 or 25 years generally see their balances forgiven when they meet the caps, but the system hasn’t worked as intended, Education Secretary Miguel Cardona said in a statement.

The Education Department will continue to identify and notify borrowers who reach the forgiveness thresholds every two months until next year, when all borrowers who are not yet eligible for forgiveness will have their payment counts updated, the administration said.

The Saving on a Valuable Education (SAVE) Plan was announced last year, but has been mostly overshadowed by President Joe Biden’s broader forgiveness plan that was struck down by the U.S. Supreme Court.

The SAVE Plan is estimated to cost $230 billion over 10 years, according to the Congressional Budget Office. Estimates from researchers at the University of Pennsylvania put the cost at up to $361 billion.

The SAVE Plan is generally intended to replace existing income-driven plans. Borrowers will be able to apply later this summer, but some of the changes will be phased in over time.

The new plan won’t require borrowers to make payments if they earn less than 225 percent of the federal poverty line — $32,800 a year for a single person. The cutoff for current plans, by contrast, is 150 percent of the poverty line, or $22,000 a year for a single person.

It also stops interest from snowballing. As long as federal student loan borrowers are making monthly payments, accumulating interest won’t cause their balances to balloon.

Other major changes take effect in July 2024. Most notably, payments on undergraduate loans will be capped at 5 percent of discretionary income, down from 10 percent now. Those with graduate and undergraduate loans will pay between 5 percent and 10 percent, depending on their original loan balance. For millions of Americans, monthly payments could be reduced by half.

Next July will also bring a quicker road to loan forgiveness. Starting then, borrowers with initial balances of $12,000 or less will get the remainder of their loans canceled after 10 years of payments. For each $1,000 borrowed beyond that, the cancellation will come after an additional year of payments.

For example, a borrower with an original balance of $14,000 would get all remaining debt cleared after 12 years. Payments made before 2024 will count toward forgiveness.

The Associated Press contributed reporting.