The Federal Reserve pegged total student loan debt in America at $1.73 trillion at the end of the third quarter of 2023, averaging just over $38,000 per borrower.
It’s a problem; plan advisors know firsthand how it can prevent participants from saving for retirement. The student loan matching provision contained within SECURE 2.0 legislation is one angle of attack to begin to chip away at the massive amount.
And now the Biden Administration is initiating an equally massive effort to inform the public about the various student debt reduction programs available to them.
SAVE on Student Debt, which launched on Wednesday, is a partnership outreach campaign between the U.S. Department of Education, Civic Nation, the NAACP, the National Urban League (NUL), Rise, the Student Debt Crisis Center, UnidosUS, and Young Invincibles.
It’s meant to highlight the Department’s new income-driven repayment plan—the Saving on a Valuable Education (SAVE) Plan.
“Through the SAVE on Student Debt campaign, we are asking everyone—community organizations, colleges and universities, government agencies, community leaders, and more to spread the word about affordable repayment options and the SAVE Plan,” according to organizers. “Everyone can play their part to support this work!”
This includes retirement plan advisors and the enrollment, education, and even one-on-one meetings they perform onsite for their plan sponsor clients. Providing the information is a differentiating factor that can lead to reduced debt and increased participation (and deferral rates) in the plans they offer.
The goal is to direct borrowers directly to the Income-Driven Repayment (IDR) application or to other resources that can help them better afford their student loans through other repayment and even forgiveness programs.
More specifically, advisors can suggest plan sponsors do the following to help their employees:
- Include information about SAVE in newsletters, financial literacy resources, and training sessions.
- Add information about signing up for SAVE on their website.
- Incorporate information about signing up for SAVE during the onboarding process and on the company’s website, including the Human Resources portal or employee site, or in internal newsletters.
- Send emails or in-app push notifications to borrowers who may benefit from SAVE based on other information on file, such as income level.
- Amplify SAVE on social media channels and/or publish a blog post highlighting members or employees who have benefited.
- Host workshops or webinars for staff.
‘SAVE’ Plan Specifics
The SAVE Plan calculates monthly payments based on the borrower’s income and family size rather than their loan balance. Unlike with other income-driven repayment plans, the balance won’t grow due to runaway interest as long as the borrower makes their monthly payments.
Organizers claim many borrowers have seen their monthly payments drop to $0 under the SAVE Plan. Anyone with Direct Subsidized and/or Direct Unsubsidized Loans can apply regardless of income level.
Notably, borrowers enrolled in the SAVE Plan are eligible for total loan forgiveness if they have made at least 10 years of monthly payments and originally took out $12,000 or less.
It claims to lower payments for almost all people compared to other IDR plans because payments are based on a smaller portion of the borrower’s adjusted gross income (AGI).
The SAVE Plan has an interesting benefit: If a full monthly payment is made but is not enough to cover the accrued monthly interest, the government covers the rest of the interest that accrued that month. This means that the SAVE Plan prevents balances from growing due to unpaid interest.
More elements of SAVE will go into effect in the summer of 2024.
MORE INFORMATION ON THE SAVE PLAN IS FOUND HERE: StudentAid.gov/save
