If you’ve been drowning in student loans and wondering when some relief might come your way, there’s good news. The Biden administration has approved a major relief measure that could forgive up to $12,000 in student loan debt—and for many borrowers, this forgiveness will happen automatically. Here’s everything you need to know about who qualifies, how it works, and what you need to do to take advantage of this financial lifeline.
What Is the $12,000 Relief About?
This relief is part of the administration’s broader Saving on a Valuable Education (SAVE) Plan, an income-driven repayment plan designed to help borrowers by making their monthly payments more affordable and eventually forgiving remaining debt. The key part of this new initiative is that borrowers with federal student loan balances of $12,000 or less can have their loans completely forgiven after 10 years of payments.
For those who owe more than $12,000, forgiveness is still possible but will take a little longer. Here’s how it works:
- If you started with $12,000 or less in student loans, you’ll qualify for forgiveness after making 120 qualifying payments, or 10 years of payments.
- For every additional $1,000 borrowed beyond $12,000, you’ll need to make an extra year of payments. For example, if you borrowed $15,000, you would qualify for forgiveness after 13 years of payments.
Who Qualifies for the $12,000 Forgiveness?
To qualify, you’ll need to meet these key requirements:
- Your Original Loan Balance Matters: This relief is based on the original amount you borrowed, not what you currently owe. If you borrowed $12,000 or less, you’re eligible for forgiveness after 10 years.
- You Must Be Enrolled in the SAVE Plan: The forgiveness is tied directly to borrowers who are enrolled in this income-driven repayment program. If you’re not currently enrolled, you can apply through the Federal Student Aid website or your loan servicer.
- Qualifying Payments: You’ll need to have made 120 qualifying monthly payments. Payments made under previous income-driven repayment plans may count toward this total.
The good news? If you’ve already been making payments for several years, those payments could be counted retroactively toward the 10-year requirement.
How Does the SAVE Plan Help Borrowers?
The SAVE Plan isn’t just about eventual forgiveness—it also helps borrowers manage their monthly payments and avoid their loan balances from ballooning due to interest. Here are some of the key benefits:
- Lower Monthly Payments:
- For borrowers with undergraduate loans, monthly payments are now calculated at 5% of your discretionary income (down from 10%).
- This could significantly reduce monthly payments for borrowers, making it easier to stay on track and avoid default.
- No More Ballooning Loan Balances:
- One of the most frustrating parts of student loans is seeing your balance grow due to unpaid interest. Under the SAVE Plan, any unpaid interest is automatically forgiven, meaning that as long as you’re making your monthly payments, your loan balance won’t increase.
- Faster Forgiveness for Low-Balance Borrowers:
- Borrowers with smaller loan balances ($12,000 or less) will see forgiveness in as little as 10 years, compared to the standard 20-25 years under traditional income-driven repayment plans.
When Will Borrowers See Relief?
The Department of Education has already started the process of implementing this new provision. In fact, some eligible borrowers enrolled in the SAVE Plan who have already made at least 10 years of payments could see their loans automatically discharged this year.
If you qualify, you’ll receive a notification from the Department of Education, and the forgiveness will be applied automatically—no need for extra paperwork. Notifications began going out in February 2024, so if you’re eligible, be on the lookout for an email or letter.
What If You Owe More Than $12,000?
Don’t worry—this relief isn’t only for borrowers with small balances. If you owe more than $12,000, you can still qualify for forgiveness after making payments for a longer period of time. For example:
- If you owe $13,000, you’ll need to make 11 years of payments before your remaining balance is forgiven.
- If you owe $15,000, you’ll need to make 13 years of payments.
- The same rule applies no matter how much you owe—just add an extra year of payments for each additional $1,000 borrowed.
The SAVE Plan also ensures that you’ll never pay more than necessary, as your monthly payment is adjusted based on your income.
How to Enroll in the SAVE Plan
If you’re not already enrolled, it’s easy to get started:
- Go to the Federal Student Aid website: Visit studentaid.gov and log into your account.
- Apply for an income-driven repayment plan: Select the option to apply for the SAVE Plan.
- Provide income information: Your monthly payments will be based on your income and family size, so you’ll need to provide tax information or other proof of income.
- Confirm your enrollment: Once you’re approved, your loan servicer will let you know your new payment amount and schedule.
Why This Relief Matters
With student debt reaching record levels, this $12,000 forgiveness program is a major step toward easing the financial burden on borrowers. For those with smaller loan balances, it could mean having their debt wiped out much sooner than expected, giving them a fresh financial start.
Even for those with larger balances, the SAVE Plan offers critical benefits, like lower monthly payments and protection against growing loan balances. Combined, these changes could help millions of borrowers stay on track and avoid default.
Final Thoughts: What Should You Do Next?
If you’re eligible for the $12,000 relief or think you might qualify, here’s what you should do:
- Check your loan balance: Log into your student loan account to see how much you originally borrowed.
- Enroll in the SAVE Plan if you haven’t already: This is key to accessing the forgiveness and other benefits.
- Track your payments: Make sure you understand how many qualifying payments you’ve made and how many you have left.
- Stay informed: Keep an eye out for updates from the Department of Education, especially if you’re close to meeting the 10-year payment requirement.