NerdWallet's Smart Money Podcast - Student Loan Debt Relief and the SAVE Plan’s Future with Secretary Miguel Cardona

Episode Date: February 28, 2024

U.S. Education Secretary Miguel Cardona discusses the early rollout of $1.2B in student loan forgiveness and the future of debt relief. Why did the Biden administration accelerate student loan forgiveness by wiping away $1.2 billion in debt nearly six months ahead of schedule? How will eligible borrowers, especially those enrolled in the new income-driven repayment plan SAVE, be notified of this unexpected relief? Hosts Sean Pyles and Anna Helhoski explain the latest in student loan forgiveness before Anna speaks with Dr. Miguel Cardona, U.S. Secretary of Education. They break down the latest wave of debt relief, totaling a historic 138 billion dollars approved for cancellation among 3.9 million borrowers, all achieved through executive action. They also discuss the motivations behind prioritizing student debt forgiveness and the details of the SAVE plan, offering insights into who benefits, how eligible borrowers will be notified, and what lies ahead for student loan borrowers in 2024.  In their conversation, the Nerds discuss: student loans, loan forgiveness, Saving on a Valuable Education (SAVE) plan, debt relief, income-driven repayment, financial aid, student debt, loan cancellation, loan eligibility, loan notification, executive action, loan benefits, repayment plan, loan borrowers, debt cancellation, loan relief, loan impact, loan insights, loan motivations, federal student aid, and Free Application for Federal Student Aid (FAFSA). To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. Last week, the Biden administration announced it would be automatically canceling $1.2 billion

in student loans for 153,000 eligible borrowers. This group is the first to benefit from the forgiveness component of the new income-driven repayment plan called Saving on a Valuable Education, or SAVE. That's right, Sean. Borrowers who are eligible include those who have been in repayment after at least 10 years and originally took out $12,000 or less in student loans. That relief includes refunds of past payments for eligible borrowers. And all of that debt cancellation is arriving early. Borrowers weren't supposed to receive automatic relief until July. Yeah, and it's just the latest wave of debt relief by this administration. In total, nearly one hundred and thirty eight billion dollars has been approved for cancellation among three point nine million borrowers.

For context, that's more than any administration in history. And it was all done through executive action, not legislation. Last week, Ana spoke with Education Secretary Miguel Cardona about the unexpected early loan cancellation. We'll have that interview coming up after the break. Secretary Cardona, thank you so much for joining Smart Money today. Of course. Great to be with you, Anna. The Biden administration is wiping away the balances for the first batch of eligible borrowers who enrolled in SAVE. Now, not that borrowers are complaining, but I'm curious why this debt cancellation dropped nearly six months ahead of schedule.

From day one, the president was very clear with us. He wants to make higher education more affordable, more accessible. So we've been relentless to try to continue to deliver, whether it's fixing public service loan forgiveness or introducing the SAVE plan, which is the most affordable income-driven repayment plan. There were components of it that a bulk of the components are going to be delivered in the summer of 24. But this was one that we were able to process earlier. It's no different than the PSLF adjustments or the IDR adjustments that we've been making over the last year.

The more debt forgiveness to as many people as quickly as possible is the goal. And we were able to deliver this one a little bit earlier and we were thrilled that we were able to do it. $1.2 billion in debt relief announced today for 153,000 borrowers. They're getting their email six months earlier than they would have gotten it if we'd done it in the summer. So we're proud about that. And who will be benefiting from this initial wave of debt cancellation through SAVE? You know, it's interesting because through SAVE, a reduction in lifetime payments is going to be possible. So we're really encouraging folks to sign up for SAVE. But three quarters of those who are getting this

benefit are people that qualify for Pell Grants. You know, if you've taken out a loan of $12,000 or less, you're eligible for this. So we're talking about those folks that are trying to go to a community college to get some skills so that they could increase their salary. And, you know, the reality is a lot of these folks that are benefiting from this are also people that life happened and they weren't able to finish. You know, they might have debt without the credential that gives them more earning potential. Part of this is also, and really important to point out, to reduce the number of defaults that we're experiencing. We're experiencing over 1 million defaults a year in this country. We're really targeting those who would benefit the most from this debt relief. And we're happy that today we were able to announce the 153,000. Now, canceling

$1.2 billion in debt is just a drop in the bucket of what the administration has done overall for student loan borrowers. Secretary Cardona, why has this administration made student debt forgiveness such a priority? It's really bigger than student debt forgiveness. That's one part of this, the whole pie, right? It's a big part. It's an important part. It's a part that gets a lot of the headlines, but I'm just as proud of the work that we're doing to hold colleges accountable for a better return on investment, for increasing pathways to high paying careers that don't require a four year degree, to making sure that we're increasing Pell. So all these things combined is really what the president charged us to do, which is make higher education more affordable and more accessible.

Across the country, Anna, we're not reaching our potential because higher education has historically been a system of have and have nots. And there's so much untapped talent in this country. And we're hopeful that through these policy changes, which include debt relief, that more Americans are going to have access to higher education to pursue their dreams. And think about the economic benefit on the flip side of that. Right? So we look at this as a way to help our country grow and achieve its potential and, you know, compete internationally, which is the goal as well. So the administration has said that 3.9 million borrowers have been identified for student debt cancellation through one of the existing forgiveness programs.

Excluding this first group of eligible saved borrowers, has relief been delivered to all of those other borrowers? We've delivered 137, close to 138 before this tranche, billion in debt relief. Some of it is smaller. Some of it is under $10,000, depending on which program folks are eligible for. Some of it as much as $150,000 for some public servants. You know, I've spoken to school personnel that chose to teach, but they have $100,000 in debt because they have to get a master's degree. And, you know, sadly, across the country, Anna, I visited multiple states where starting salary for teachers, $39,000 a year. You know, you got

debt, $100,000. You're never going to tackle that. Yet you're choosing public service to be a teacher with a master's degree. So I'm hearing life-changing stories of people who are able to buy homes for the first time. I met this one teacher of Vermont or New Hampshire, 20 years teaching now, who said, finally, this debt forgiveness is going to give me an opportunity to fix the bathtub for her disabled husband so he can have access. That's not too much to ask for a public servant. So we're seeing life-changing stories here. And we recognize that if you choose public service,

you're not doing it for the millions of dollars. So this public service loan forgiveness program, which is one of the things that we've done, is really paying dividends for Americans across the country. Now, I regularly receive emails from student loan borrowers who think they might be eligible for debt cancellation of some kind. And they're always asking me if I have any insight as to how they'll be notified of their eligibility. So I'll turn that over to you. How can eligible borrowers expect to be notified that they are

eligible for student loan cancellation? For 153,000 people today, they got an email from the president of the United States. You know, so that's pretty impressive that the president, he's this passionate about it, that he wants to make sure that for this group, they're hearing from him directly. The majority of the folks, you know, we're close to 3.9 million people have gotten emails from the federal student aid or the servicer of the loan. I've gotten screenshots sent to me of people who send me their loan balance zero with a check mark with the loan servicer company being the person or the group that's sending the email. So what I would tell the listeners is it could come from federal student aid. In some cases, it comes from the president. But in most cases, it comes from

the servicers that are handling the loans. They're the ones that get the information that says, you know, so-and-so has met the requirements of public service loan forgiveness or the income-driven repayment expectation of 20 years. Or in this case, this person is a save plan recipient that has qualified for loan discharge. So the company would send it directly to the borrower. There are a lot of scams right now, especially around cancellation, around forgiveness, where a scammer will say that people have to pay for their cancellation or provide some kind of

personal info in order to get that debt relief. So for borrowers, will they have to do anything to enact cancellation or does it happen automatically? It happens automatically. Studentaid.gov, we have information there about how to avoid scams because you're right. You know, when the president's plan to discharge loans for 40 million people was announced, we also did a campaign on making sure people know what to look out for. There are a lot of scammers out there. Studentaid.gov, you can find more information. But if you don't receive an email from your loan servicer or from the Federal Student Aid Office directly, I would be weary. If anyone is asking for information or saying you have to pay for something, it's a scam. There are a lot of people

that are trying to take advantage of this. Get the information directly from the Federal Student Aid Office or from the loan servicer. So what can student loan borrowers expect from the SAVE plan as we're getting deeper into 2024? I suspect there might be more relief or other aspects of the plan are going to be going into effect. Yes, the SAVE plan, which we're really proud of, as I said before, you know, very few things will get as many headlines as loan discharge. But the SAVE plan is something that we think is a game changer. We know that families who sign up for SAVE or borrowers who sign up for SAVE will have over the lifetime of their loan for undergraduate students, they're going to be saving, we're averaging about $40,000 in student loan debt.

So what they should expect is to hear more about different strategies that we're taking to make higher education more affordable, to make loan repayment more manageable. Keep in mind, a million defaults a year, that's a problem for our country. We're fixing it. The president is bold on it. We're proud that we're able to help borrowers at this time. But at the end of the day, we're hoping to fix a broken system so that in five years from now, we're not in the same position we are today. So take advantage of PSLF if you're a public servant. Take advantage of the SAVE plan if you're not enrolled for it. And you can find all this information on studentaid.gov.

Secretary Cardona, thank you so much for joining us. All right. You take care. Bye-bye. That's it for this week's Money News. We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Sean Piles. Sarah Brink mixed our audio.

Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.