Winners and Losers: Assessing Income-Based Implications of Biden’s SAVE Student Loan Repayment Plan

Who stands to benefit the most from President Biden’s latest attempt at student loan forgiveness?

If the administration’s new policy to hold predatory colleges more accountable goes according to plan, undergraduates at public two-year colleges may be in the best position.

According to a research analysis published by the Urban Institute, borrowers who earn certificates instead of four-year degrees will only have to repay about a third of their total borrowed amount using the new income-driven repayment plan. This plan, known as “Saving on A Valuable Education” or SAVE, bases monthly loan repayments on borrowers’ incomes and family sizes, effectively reducing payments for almost all participants. The findings are based on data from the College Scorecard, an online tool provided by the Education Department to compare colleges.

Income-driven repayment is not a new concept, but Education Secretary Miguel Cardona has described the latest iteration of the program as the “most affordable repayment plan ever.” For some borrowers, it will even reduce monthly payments to $0. Over 4 million borrowers have already enrolled, and it will be fully available to all federal student-loan borrowers starting July 1, 2024.

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Easing student loan repayment for undergrads

According to the report, undergraduates are in luck. Most of the largest undergraduate fields in the country will see a decrease in the number of programs where borrowers have to fully repay their loans.

However, the benefits for typical graduate borrowers, who historically have benefited more from income-driven repayment plans compared to undergraduates, are less likely to increase. Graduate students on average have more loans than undergraduates and have received the most help from income-based programs, according to a 2020 report by the Congressional Budget Office.

The report also highlights that undergraduate psychology, humanities, and teaching programs may have an easier path to repayment under the SAVE plan. Currently, nearly 100% of psychology programs require borrowers to fully repay, but under SAVE, this number will drop to a little over a quarter. The program also seems to be good news for borrowers pursuing humanities and teaching degrees.

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There may be a smaller difference for borrowers pursuing degrees in engineering, finance, or registered nursing. In these fields, most undergraduate programs already require borrowers to fully repay their loans based on income, and this is unlikely to change significantly because these borrowers typically go on to higher-paying jobs.

One important factor to consider regarding the SAVE rollout is the Biden administration’s crackdown on predatory colleges. According to Jason Cohn, a research analyst at the Urban Institute and one of the authors of the report, the implications of this crackdown remain uncertain. The analysis suggests that the highest loan forgiveness rate under SAVE will be at public two-year institutions, but this conclusion is based on excluding programs that are likely to fail new accountability metrics implemented by the Education Department.

“A lot of it really comes down to how institutions and students perceive this issue, how the information is disseminated, and how accountability efforts unfold,” Cohn explained.