Four million borrowers have enrolled in the new Income-Driven Repayment (IDR) plan, "Saving on a Valuable Education" (SAVE). This plan, which replaces REPAYE, provides additional relief to borrowers who need it most.
Borrowers have been anticipating the resumption of payments ever since it became clear that there would not be another extension. This has left them scrambling to understand how they will manage their finances come October.
Reports from publishers such as CNBC and Bloomberg have repeatedly highlighted that borrowers simply can’t pay. So, is this first wave of enrollments an early glimpse of a more optimistic borrower?
While the SAVE plan is going to provide the most relief to many borrowers, there are other things that can be done to maximize relief. We’ve put together the reasons why borrowers are signing up for SAVE in droves, and how to make the most informed decisions about repayment.
Payments Return October 1st
This may seem like an obvious reason, but it reveals a lot about how student loan borrowers are approaching their finances and preparing for the future. Despite the various forms of relief available, including a "Safety Net" that prevents borrowers from experiencing negative credit impacts if they default due to lack of payment this year, it seems that borrowers are still focused on making smart financial decisions, starting with their student debt.
Some SAVE Benefits are Coming Sooner
When SAVE was announced earlier this year, it was expected to go into effect in July, 2024. However, it was recently announced that some of the benefits that will lower monthly payments for millions, will go into effect sooner. Here’s are the immediate changes:
Income Exemption Increase
If you are single and earn less than $32,805 a year, you will not be required to make payments. Similarly, if you are part of a family of four and earn less than $67,500 a year, you will not have a monthly payment. This is because payments are calculated at 225% of the poverty line, rather than 150% as on other IDR plans.
For those earning over 225% of the poverty threshold, payments will still be lower with this calculation, providing significant relief to borrower’s budgets coming out of the student loan payment pause.
Income Considered for Marital Status
For married borrowers previously on REPAYE, their payments will now be lowered depending on how they file. Spousal income is excluded for borrowers who are married and file separately.
Interest Elimination
The plan eliminates 100% of the remaining interest on both subsidized and unsubsidized loans after a scheduled payment is made. If you make your monthly payment, your loan balance will not increase due to unpaid interest. So, if $50 in interest accumulates each month and you make a $30 payment, the remaining $20 will not be charged.
More to Come with SAVE in July 2024
Payments Capped Sooner
Currently, the SAVE plan caps borrowers payments at 10% of their discretionary income on all loans. This calculation will remain the same for graduate loans. However, if you have undergraduate loans, that cap happens at 5% of your discretionary income.
Have loans from your undergrad and graduate school? Your payment will be the weighted average of your loans.
Two Times Faster Forgiveness for Some
On the SAVE plan, loans with principal balances of $12,000 or less will be forgiven of any remaining balance after making ten years of payments. The maximum repayment period before forgiveness will increase by one year for every additional $1,000 borrowed.
So, if you have a loan with an original principal balance of $14,000, you’ll receive forgiveness in 14 years.
Other Benefits will Include:
- For consolidated loans, your progress towards loan forgiveness will be maintained. The credit will be calculated as a weighted average of payments that count towards forgiveness, based on the principal balance of the consolidated loans.
- Credit toward forgiveness for specific periods of deferment and forbearance will be provided automatically.
- You will have the option to make additional "catch-up" payments to receive credit for any deferment or forbearance periods they may have missed.
Is the SAVE Plan Right for You?
SAVE and other Income-Driven Repayment plans are not available for private loans, and some types of loans do not qualify. However, most loan types become available for the SAVE plan when consolidating into a Direct Federal loan. Borrowers who choose to consolidate their loans will maintain their progress towards loan forgiveness if enrolling in the SAVE plan. This is achieved by receiving credit for a weighted average of payments that count towards forgiveness, based on the principal balance of the loans being consolidated.
The problem is that many borrowers are unaware of the type of federal loans they have, and servicers are overwhelmed, making it difficult to obtain the necessary information for borrowers.
The easiest way to identify the plans you are eligible for, and consolidate ineligible loans to gain access to SAVE or another IDR plan, is to use the Chipper app. While SAVE is the best plan for most borrowers, the app provides a transparent comparison of options, enabling borrowers to understand what steps they can take to maximize relief and worry less about their finances.
