Biden's new student loan repayment plan is open. Here's how to enroll.

Borrowers who are buckling under the pressure of their federal student loans have a new option to significantly cut their payments, eventually by as much as half.

The Biden administration's new income-driven repayment plan known as SAVE opened for enrollment Tuesday, providing millions of borrowers with a more affordable way to pay their monthly student loan bills, which will become due again in October after a three-year pause.

"With the SAVE plan, we are making a promise to every student," Education Secretary Miguel Cardona said during a call with reporters Monday afternoon. "Your payments will be affordable. You're not going to be buried under a mountain of interest and you won't be saddled with a lifetime of debt."

In the coming days, more than 30 million borrowers will be invited to enroll in the plan, which was initially proposed in January and bases monthly payments on income and family size.

Unlike the White House's former plan to cancel up to $20,000 in federal debt — struck down by the Supreme Court in June — this payment option will become a permanent piece of the student loan machinery and be available to current and future borrowers. It also creates a new safety net, automatically enrolling certain borrowers into the SAVE plan after they have fallen behind on their payments.

Borrowers who want to sign up for the SAVE — or Saving on a Valuable Education — plan, should move quickly: You can expect to wait roughly four weeks for your application to be processed, senior department officials said. By enrolling now, you can have your paperwork processed with enough time before your first payment becomes due, officials added.

Borrowers won't receive the full benefits of the plan until next summer, because some features won't immediately take effect. Here's a rundown on how the plan will work:

Those with federal undergraduate or graduate loans. Borrowers with undergraduate debt are eligible for lower payments than graduate borrowers.

Who is excluded?

Parents who borrowed to pay for their children's schooling using Parent PLUS loans cannot enroll in the new plan.

If parent borrowers cannot afford to make their payments, they generally have access to only the most expensive income-driven repayment plan — known as income-contingent repayment — which requires borrowers to pay 20% of their discretionary income for 25 years; anything remaining is forgiven.

How does the new SAVE plan work?

The SAVE plan — which replaced the Revised Pay as You Earn program, or REPAYE — is more generous in several ways. To start, it would reduce payments on undergraduate loans to 5% of discretionary income, down from 10% in REPAYE (and 15% in other plans).

Graduate debt is also eligible, but borrowers would pay 10% of discretionary income on that portion. If you hold both undergraduate and graduate debt, your payment will be weighted accordingly.

The new rules also tweak the payment formula by protecting more income for basic needs, which in turn reduces payments overall. That change will also allow more low-income workers to qualify for $0 payments.

What is discretionary income?

Once you pay for basic needs like food and rent, any leftover income is considered discretionary; income-driven repayment plans require borrowers to pay a percentage of that discretionary income.

SAVE increases the amount of income protected from repayment to 225% of the federal poverty guidelines, roughly equivalent to $15 an hour for a single borrower. If you earn less than that, you won't have to make a monthly payment.

Put another way, a single person who makes less than $32,805 a year would make $0 monthly payments. The same goes for someone in a household of four with income below $67,500. That should help an additional 1 million low-income borrowers qualify for a zero-dollar payment, the Education Department said.

Under the old REPAYE program, less income was shielded, or up to 150% of the federal poverty guidelines.

Will the way interest is treated change?

Yes. This is one of the most attractive features of the new plan. If a borrower's monthly payment does not cover the interest owed, the Education Department will cancel the uncovered portion.

This new rule will provide relief to those who made payments but saw their balances balloon because they didn't pay enough to cover the interest owed.

Does the plan go into effect right away?

Three big components of the plan are available now, including: shielding more income from the repayment formula, which will reduce more borrowers' payments to zero. The new treatment of unpaid interest is also in effect. Lastly, married borrowers who file their taxes separately will no longer be required to include their spouse's income in their monthly payment calculation. (They will also have their spouse excluded from their family size.)

But other benefits — including cutting payments to 5% from 10% of discretionary income on undergraduate loans — won't take effect until July 2024.

Once the plan is in full swing next summer, many borrowers' monthly bills, per dollar, will drop 40% compared with the REPAYE plan. But the lowest earners may see their payments fall 83%, while the highest earners would receive only a 5% reduction.

Yes, but this feature takes effect next summer.

People who took out smaller loans — or those with original balances of $12,000 or less — would make monthly payments for 10 years before cancellation, instead of the more typical 20-year repayment period in other income-driven repayment plans. Every $1,000 borrowed above the $12,000 amount would add one year of monthly payments before the balance was forgiven, up to a maximum of 20 or 25 years.

Will the new plan always be the best option?

The SAVE plan is expected to provide the lowest payment for most borrowers and will probably be the best option for most. The loan simulator tool at StudentAid.gov can help you analyze which repayment plan makes the most sense given your circumstances and goals.

When you sign in, it should automatically use your loans in its calculations. (You can add other federal loans if any are missing.) You can also compare plans side by side — how much they'll cost over time, both monthly and in total, and if any debt would be forgiven.

Borrowers who fell into default before the payment pause — which happens when you're at least 270 days behind — have received a fresh start and are considered current on their payments. That means they can enroll in SAVE or any other repayment plan.

But they need to take certain steps to do so — and complete them before September 2024 to keep their loans out of default for the loan term.

Here's how: Contact the Education Department's Default Resolution Group — by phone (1-800-621-3115), online or mail — and ask to take your loans out of default through the "Fresh Start" program. The default group can also help you enroll in an income-driven repayment plan, including SAVE.

The group will transfer your loans to a regular loan servicer and wipe the record of default from your credit report.

"Their new servicer will then put them into the IDR plan with the lowest monthly payment they are eligible for," a spokesperson for the Education Department said. "For most borrowers, this is SAVE."

Borrowers who fell behind on their monthly student loan bills before the payment pause have also received a fresh start and will be permitted to enroll in the SAVE program, just like any other borrower.

Going forward, borrowers who go 75 days without making a payment will be automatically enrolled in the SAVE plan — as long as they have provided approval to disclose their federal tax information to the Education Department. This policy will take effect next July.

How do I sign up?

You can sign up online at StudentAid.gov/SAVE; borrowers will be able to see their payment amount before signing up. Administration officials said the process shouldn't take more than 10 minutes. After applying, you can check the status of your application by visiting your account dashboard.

And for the next few months, loan servicers will also be able to help borrowers enroll and "self-certify" their income without needing tax documentation, either through the servicer's website or over the phone, said Scott Buchanan, the executive director of Student Loan Servicing Alliance, an industry trade group.

What happens if I try to enroll but my application cannot be processed in time for my first payment?

You will be placed in forbearance, meaning no payment will be due, for the next billing cycle.

Do I have to do anything to remain enrolled?

Your payment size adjusts each year based on your earnings, and your income needs to be updated annually.