Rethinking Student Debt in the Age of the SAVE Plan

Title: The SAVE Plan for Student Loan Repayment: Which Fields and Colleges Benefit Most?

Author: Jason Delisle and Jason Cohn

Source: The Urban Institute

A new report from the Urban Institute examines how the Biden administration’s proposed Saving on a Valuable Education (SAVE) plan for income-driven repayment (IDR) of federal student loans will impact borrowers across fields of study and higher education sectors.

Finalized in 2023 and taking effect in July 2024, the SAVE plan will replace the current Revised Pay As You Earn (REPAYE) program. It aims to lower monthly payments and accelerate loan forgiveness for undergraduate borrowers compared to existing IDR options.

Using College Scorecard data, the report estimates repayment rates if typical borrowers use the SAVE plan versus the current IDR plan. Key findings include:

• The reduced payments and increased forgiveness under SAVE will mostly benefit undergraduates, especially certificate and associate degree students. Graduate borrowers are unlikely to see increased benefits.
• Certificate borrowers would typically repay 35 percent of their debt under SAVE versus fully repaying under the current IDR plan. For associate degree programs, the repayment rate drops from 111 percent to 69 percent.
• At least one third of undergraduate programs in every higher education sector will see some debt forgiveness, with the highest rates at for-profit institutions (74 percent) and the lowest at four-year public institutions (34 percent).
• Fields like humanities, psychology, medical assisting, and teacher education will see the largest declines in full repayment, while fields like registered nursing, finance, and engineering will see little change.
• Under SAVE, 20 percent of undergraduate programs will see over half of debt forgiven, up from just 1 percent under the current IDR plan, indicating large subsidies and incentives to borrow more in these high-forgiveness programs.
• Reduced payments and increased forgiveness disproportionately benefit programs enrolling more Black and Hispanic students.

These findings indicate that policymakers, students, and colleges need to rethink student debt under SAVE:

• SAVE represents a major shift, with student loans and forgiveness playing a much larger role in higher education financing.
• Many students, especially in certificate and associate degree programs, will only repay a fraction of their debt, which could encourage further borrowing.
• With high forgiveness rates, student debt will no longer clearly signal program affordability and quality, warranting new quality control measures and accountability policies to prevent abuse.

To read the full report, click here.

—Alex Zhao