Relief Is Coming for Artists With Federal Student Loan Debt

While dentists are the Master’s Degree graduates with the highest median student loan debt ($158,155 median as of 2022), the second-highest group of student loan holders are Masters of Visual and Performing Arts ($63,830). You won’t be surprised to learn that an arts graduate’s median annual salary pales in comparison to that of a junior dentist: $53,140 for craft and fine artists versus $164,010 for first-year dentists.

As the three-year federal student loan forbearance period ends and repayments start back up on October 1 (interest started accruing again on September 1), there is good news for artists with federal student loan debt. The Biden administration created a new income-driven repayment plan and path to loan forgiveness that will save you money, but you need to opt in to get it. Here’s what you need to know.

The Biden administration’s second attempt at a student loan forgiveness plan, after the Supreme Court struck down the original, is called the Saving on a Valuable Education (SAVE) Plan. This plan is on a firmer legal footing, as it is based on Congressional approval that was granted in 1993 under President Bill Clinton, allowing the Department of Education to establish income-driven repayment plans.

The SAVE Plan is a generous income-driven repayment plan that bases payment on family size and income. About one million more people qualify for $0 payments under SAVE than under current law. 

First, SAVE raises the floor on borrowers’ living expenses from 150% of the federal poverty guideline to 225%. A single borrower earning under $32,805 a year or a family of four earning less than $67,500 per year, for example, will not have to make payments at all.

But what about interest? The SAVE Plan changes the way that interest accrues on your outstanding loan balance. If you make your payments, including $0 payments if eligible, no interest will accrue on your loan balance. This is new. Under the old plans, many borrowers who qualified for $0 payments still saw their loan balances balloon due to accruing interest. This plan stops that from happening.

Undergraduate loan borrowers will see a huge reduction in monthly payments — up to 50% of their monthly payments because of a change in the repayment calculation called the assessment rate. The Department of Education will now base your payment on 5% of your remaining discretionary income (aka, the income above the “floor”), instead of 10% as under current repayment plans.

And full loan forgiveness is still possible. For undergraduate student loans, borrowers with loan balances less than $12,000 who make all their monthly payments (even $0 payments) will get loan forgiveness in 10 years. For each $1,000 increment above $12,000, forgiveness will be granted in one additional year. For example, a borrower of $15,000 would have their loan forgiven after 13 years of payments. Any undergraduate loan borrower would receive forgiveness after 20 years of making monthly payments. 

Graduate student debt will be forgiven only after 25 years of payments. However, graduate student loan borrowers will still benefit from the more generous payment terms.

Note the timeline on the SAVE program: The $0 payments and zero interest went into effect on September 1. The forgiveness pieces go into effect in 2024. The program is only for federally held loans.

Who is eligible? 

• Direct subsidized, unsubsidized, and consolidated loans
• PLUS graduate loans
• FFEL (Fed Family Ed Loans) or Perkins Loans, which are held by a commercial lender, can qualify only once you consolidate into a federal direct loan.
• Parents who have Parent PLUS loans are not eligible

Unlike the one-time student loan forgiveness program that was struck down by the US Supreme Court in June, this is a permanent program and future borrowers will be eligible for it.

You must opt into this program. You can do this at studentaid.gov. If you are in the Revised Pay As You Earn (REPAYE) plan (check your status at studentaid.gov, and click “My aid” under the “My info” sidebar), you will be automatically moved into the SAVE Plan. Also on this website, there’s a calculator where you can see what your payments would be under the new plan.

It may take a few weeks to verify your info, so you’ll want to go to the studentaid.gov website and opt-in as soon as possible.

The Department of Education is redesigning the process to make it faster and easier for you. Soon, there will be an option to opt into an IRS integration, allowing automatic access to your tax returns to the Department of Education. This will save you the step of updating and reapplying each year.

The Biden administration estimates that for every $10,000 loaned by the federal government, it will forgive $3,900. Under the SAVE plan, about one-fifth of borrowers will not pay a dime — they will qualify for $0 payments, and then have their loans forgiven. 

Takeaways

• Use the calculator at studentaid.gov to see what your payments would be under the new plan, and understand how your budget will need to change to accommodate your repayment.
• Many loan servicers have changed over the forbearance period, so check to see who your current servicer is, and set up your account.
• Go to studentaid.gov to find out what plan you are on now, and opt into the SAVE Plan.

Editor’s Note: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This article is meant for general information only. Please don’t act on this alone.