Borrowers can now apply for new, income-based student loan repayment

The program will calculate monthly payments based on the borrower's income and family size. The administration estimates that under SAVE more than a million borrowers will qualify for $0 monthly payments, while the average borrower will save about $1,000 a year. The new plan also seeks to prevent interest from exploding.

Under the SAVE plan, as long as borrowers make their monthly payments, interest will not accumulate. With previous plans, borrowers with low or $0 payments — too low to cover their monthly interest charge — saw that interest accrue. Now, the government says, that won't happen. "This is a big new loan forgiveness policy, particularly for undergraduates," says Jason Delisle, who studies higher education at the Urban Institute.

Those with Federal Family Education Loans or Perkins Loans that are held by a commercial lender would need to consolidate that debt into a federal direct loan in order to qualify.

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