Forgiveness is coming early for some federal student loan borrowers.
If you're on the Saving on a Valuable Education repayment plan, initially borrowed $12,000 or less and have been making payments for at least 10 years, you will be eligible to have any outstanding balances forgiven, a provision that was initially slated to roll out this summer.
But those eligible borrowers will now see their debt forgiven in February, according to the Department of Education. The borrowers will not need to take any further action, ED says.
"This is one strategy in a host of strategies that [the Biden-Harris administration] is doing to make higher education more affordable and more accessible," Education Secretary Miguel Cardona tells CNBC Make It. "[We want] to address some of the disparities that we found in higher education loan processing and instill confidence in borrowers."
As part of improvements to income-driven repayment plans, borrowers on the SAVE plan are eligible to have their remaining balances forgiven after as little as 10 years of payments. That's down from a minimum of 20 years of repayment before forgiveness on older IDR plans.
Those who originally borrowed up to $21,000 can have their debt forgiven early on the SAVE plan. They must make payments for an additional year for every $1,000 borrowed above the $12,000 threshold before their loans are forgiven.
So if you took out $15,000 in loans, you could have your balance forgiven in 13 years on the SAVE plan, rather than 20 years for undergraduate borrowers with larger initial balances.
"We recognize that for for those who take out lower smaller loans, a lot of those folks are the ones that end up without the degree and with debt that they can't handle and they're low-income earners," Cardona says. "This is a subgroup that's really negatively impacted by the current system, so we wanted to target our support to those who have low debt."
Borrowers who are already enrolled in SAVE and meet the forgiveness criteria will be notified via email In February and "have their debts cancelled immediately," according to ED.
Those who would be eligible for forgiveness but haven't enrolled in SAVE yet are encouraged to sign up as soon as possible to get their relief when it starts rolling out.
In February, "the Department will also email borrowers not on SAVE who can receive forgiveness as soon as they sign up for the plan," ED said in its statement.
More SAVE relief to come
Even borrowers who won't be eligible for debt forgiveness right away stand to benefit from enrolling in the SAVE plan.
As of early January, 6.9 million borrowers have enrolled in the SAVE plan, with 3.9 million qualifying for $0 monthly payments, the Biden Administration said.
Among those who do owe monthly payments, they're saving an average $117 a month on the SAVE plan, not including interest, which is eliminated when it exceeds a borrower's monthly payment.
This summer, the SAVE plan will make payments even more affordable as the calculation drops from 10% of a borrower's discretionary income down to 5%. That could be great news for borrowers whose income currently makes their monthly payment on SAVE higher than other plans, like the standard repayment plan.
"I want folks to recognize [it takes] 10 minutes to fill out the SAVE plan [application], and you could be getting an email as early as February telling you that your debt is cleared out," Cardona says. "We're moving as quickly as we can."
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