Early student loan forgiveness under SAVE plan to cover 6,040 borrowers in Michigan

Some 6,040 student loan borrowers in Michigan began receiving emails this week that indicated that their federal student debt was being automatically forgiven under the income-driven repayment program known as the SAVE plan.

In Michigan, $47 million in federal student loans will be forgiven in a first round of forgiveness under the SAVE plan, according to the U.S. Department of Education's data. States where even more debt and more borrowers will see forgiveness now include California, Florida, New York, Ohio, and Texas.

In Ohio, some 7,540 student loan borrowers will see forgiveness soon, eliminating $60 million in federal student loan debt.

U.S. Secretary of Education Miguel Cardona said families will see a financial burden lifted, creating a boost to local economies.

"This is going from policy to people," Cardona said in a call with regional media.

It's part of a broader effort by the Biden administration to cancel $1.2 billion in federal student loan debt for 153,000 borrowers nationwide soon under the Saving on a Valuable Education Plan. The U.S. Department of Education said loan servicers started processing the early loan forgiveness on Friday, adding that these borrowers will see their loans forgiven on their accounts in the coming weeks.

The cancellation effort for this first group was set to start July 1, but the Education Department moved that up to February.

President Joe Biden emailed these borrowers in all 50 states plus territories on Wednesday — and put a note on the X, formerly Twitter — of the news.

"Starting today," Biden said on the social media platform, "the first round of folks who are enrolled in our SAVE student loan repayment plan who have paid their loans for 10 years and borrowed $12,000 or less will have their debt canceled. That’s 150,000 Americans and counting."

Borrowers are being told that all or a portion of their federal student loans will be forgiven. These borrowers do not need to take any further action to receive relief.

In some cases, many of these borrowers in this first round of forgiveness could have student loan debt with no college degree.

In June 2023, the U.S. Supreme Court in a 6-3 decision, struck down a massive $430 billion student loan forgiveness program initiated by the Biden administration, ruling the program vastly exceeded the authority Congress delegated to the executive branch.

Biden, who is seeking reelection in 2024, has vowed to fix the student loan system and has sought other avenues for reducing the burden of high student loan payments on middle-class families.

The Biden administration said it has approved debt cancellation for nearly 3.9 million federal student loan borrowers, adding up to almost $138 billion in debt relief through various actions. Other efforts included fixes to public service loan forgiveness.

Borrowers seeing forgiveness now fall under a specific category, as Biden indicated on social media. They are enrolled in the SAVE Plan, have made at least 10 years of payments, and originally borrowed $12,000 or less for college.

For every $1,000 borrowed above $12,000, a borrower can receive forgiveness after an additional year of payments.

All borrowers on the SAVE plan receive forgiveness after 20 or 25 years, depending on whether they have loans for graduate school. The Education Department notes that the benefit is based upon the original principal balance of all federal loans borrowed as a student to attend school, not what a borrower currently owes or the amount of an individual loan.

We can expect more news ahead about student debt forgiveness under SAVE. The Education Department will identify and discharge borrowers enrolled in SAVE who are eligible for forgiveness on a regular basis.

Borrowers can review whether they would benefit by signing up for the SAVE plan by going to StudentAid.gov/SAVE.

The SAVE plan went into place in 2023. It bases your monthly payment on your income and family size. Monthly payments are typically lower than other plans because they're based on a smaller portion of your adjusted gross income, according to the Education Department.

A key benefit: Many borrowers won't see their balances grow under SAVE. "If you make your full monthly payment, but it 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 your balance from growing due to unpaid interest," according to the Education Department.

The SAVE plan has some advantages relating to loan forgiveness, too.

"With the SAVE plan, borrowers who start off with less debt can have the remaining debt forgiven sooner," said Mark Kantrowitz, a student loan expert who is the author of "How to Appeal for More College Financial Aid."

Borrowers in an income-driven repayment plan normally have the remaining debt forgiven after 20 or 25 years in repayment. However, the SAVE plan offers forgiveness sooner in the process to many borrowers.

Kantrowitz said the first round of borrowers will see an average of $8,000 in federal student loans being forgiven. Many of these borrowers, he said, are more likely to have attended a community college.

The White House noted that under the SAVE plan, 85% of future community college borrowers will be debt free within 10 years.

To qualify for this forgiveness, Kantrowitz said, the borrowers needed to switch to the SAVE plan. Currently, 7.5 million borrowers are enrolled in the SAVE plan. About 4.3 million borrowers — or 57.3% of that group — have a $0 monthly payment.

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.