Why millions of student loan borrowers will have lower payments starting in July

Millions of borrowers will see their monthly student loan payments reduced starting in July, thanks to one of the Biden administration's biggest changes to the federal student loan system to date.

Most of the benefits offered by the SAVE plan are already in place, but one significant provision will take effect in July. The change could cut payments in half for some borrowers.Under the SAVE plan, monthly payments are calculated based on a borrower's income and family size, regardless of how much student debt they have.

For example, a borrower with $20,000 from his or her undergraduate education and $60,000 from graduate school will pay 8.75% of his or her income, according to a fact sheet provided by the Biden administration.Even though the Department of Education said lower payment amounts would go into effect in July, the agency is behind and has not finished recalculating borrowers' lower payment amounts.

There are two main ways the SAVE plan can lower monthly payments for enrolled borrowers. In addition to cutting the payment from 10% to as low as 5% of discretionary income, SAVE also changes the way discretionary income is calculated. It shields a bigger portion of a borrower's income, resulting in lower payments when compared with other income-driven plans. Payments can be as low as $0, and more than half of borrowers currently enrolled in SAVE are not required to make a monthly payment.

Initially, debt relief delivered under the SAVE plan was scheduled to begin this summer. But the Biden administration began canceling some eligible borrowers' debt early, in February. So far, $5.5 billion has been canceled for 414,000 people enrolled in the plan.Two groups of Republican-led states have sued to overturn the SAVE plan, arguing that the Biden administration is overstepping its legal authority.

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