The Administration rolled out the SAVE plans a mere 10 days after the Supreme Court last summer struck down Mr. Biden’s $430 billion loan forgiveness. As states argue in their lawsuits, the Education Department rushed out the plans with sloppy regulatory analysis and illegally converted loans into de facto grants.
Mr. Biden’s SAVE plans cap monthly payments at 5% of discretionary income, waive unpaid interest that accrues, and forgive remaining balances after 10 to 20 years. Discretionary income is defined as exceeding 225% of the poverty line. This means borrowers who earn less than $33,885 can pay nothing.
These are a sweetened version of the plans Democrats in Congress enacted in 2010, which capped payments at 10% of discretionary income (above 150% of the poverty line) and canceled remaining debt after 20 years. Democrats claimed these plans would reduce defaults. Instead, borrowers accrued more debt because their payments didn’t cover interest costs.
Hundreds of billions of dollars in debt is set to be written off under these plans. The government loses thousands of dollars on each borrower because they are paying less in interest than the government does to borrow. As the states note, the typical borrower is still paying $10,956 for every $10,000 borrowed.