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The Biden administration has recently introduced a fresh income-driven repayment plan for student loans. This exciting move came after the US Supreme Court’s decision to reject the previous student loan forgiveness plan proposed by the White House.
Introducing the SAVE Program
This super cool program, dubbed SAVE (Saving on a Valuable Education), takes into account your family size and income. It is open to any student borrower with a direct loan in good standing. This includes subsidized, unsubsidized, and consolidated loans. The best part? It’s anticipated to save participants a whopping $1,000 a year on average! Plus, it ensures that those with low incomes won’t have to make any payments at all, as stated by the White House.
How it Works
“Your monthly payments will now depend on your income, not your total student loan balance,” announced Vice President Kamala Harris. Furthermore, as long as you make the necessary monthly payments under your plan, your loan balance won’t increase because of unpaid interest. This means you’ll actually make headway on reducing your debt!
Why Now?
The launch of this program is perfectly timed, as the pause on student loan payments due to the pandemic is set to end this fall. Prior to this, the Biden administration had already canceled $39 billion in federal student loans for over 804,000 borrowers. This was achieved by considering payments made under income-driven repayment plans that should have counted towards loan forgiveness but were previously ignored by loan servicers.
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Who is Eligible?
The SAVE plan is anticipated to benefit over 20 million borrowers and is already up and running.
As of now, if your income is 225 percent of the federal poverty guidelines or less—meaning you earn less than $32,800 as an individual or $67,500 for a family of four—you won’t have to make payments. This is expected to impact over a million borrowers and the suspension of payments will be indefinite. Previously, only incomes protected at 150 percent of the guidelines were considered. However, if you earn more than that, your monthly payments will still reduce by an average of $91 for individuals and $187 for a family of four compared to before the pandemic payment freeze.
What Else?
The plan also prevents loan balances from increasing due to unpaid interest, a common issue with previous income-driven repayment plans.
Good news for married couples! If you file your taxes separately, you no longer need to consider your spouse’s income or include them in your family size when calculating your monthly payments under SAVE.
How to Access SAVE
If you’re already enrolled in a repayment plan known as REPAYE, or have recently applied for it, you’ll automatically be enrolled in SAVE without needing to lift a finger.
If you haven’t applied for an income-driven repayment plan yet, you can do so via the Department of Education’s Federal Student Aid website. Usually, the SAVE program will be the option with the lowest monthly payment available.
Unsure about your current payment plan? Just check on your My Aide page.
What's Next?
More relief is on the way! In July 2024, all borrowers with eligible loans under SAVE will see their undergraduate loan payments drop from 10 percent to 5 percent of income above 225 percent of the Federal Poverty guidelines.
Starting in July 2024, loans with original principal balances of $12,000 or less will be forgiven after 120 payments, or roughly 10 years of payments. For each $1,000 borrowed above that, an extra 12 payments will be needed to access forgiveness, up to a maximum of 20 or 25 years worth of payments. Currently, payments must be made for a minimum of 20 or 25 years before loans of any amount can be forgiven under income-driven repayment plans.
Tips & Examples
1. Check your eligibility: Make sure you qualify for the SAVE program by checking your income and family size.
2. Apply online: If you’re not already enrolled in an income-driven repayment plan, apply through the Federal Student Aid website.
3. Stay informed: Keep an eye out for any additional changes or relief that may come in the future, such as the changes planned for July 2024.
4. Calculate your savings: Use an online calculator to estimate how much you could save under the new plan.
5. Consider your spouse’s income: If you’re married and file taxes separately, remember that under the new plan, your spouse’s income won’t affect your payments.
Celebrate the Savings!
The new SAVE program is a game-changer for student loan borrowers, making it easier to manage your debt and save money. Remember to check your eligibility, apply online if needed, and stay informed about any upcoming changes. Here’s to a brighter financial future!
For more guidance, get in touch with one of our financial coaches.
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