87,000 Arizonans enroll for ‘SAVE’ student loan payment plan; is it right for you?
PHOENIX (3TV/CBS 5) -- With student loan payments continuing in October, the Biden Administration and the Department of Education have rolled out a new income-driven repayment plan called “SAVE.”
SAVE is short for “Saving on a Valuable Education’” and the feds say the goal with this repayment option is to significantly lower monthly student loan payments to potentially zero dollars.
Like all income-driven repayment plans, it takes your discretionary income and calculates it with a percentage of the federal poverty line to result in your monthly payments. While most income-driven repayment plans use 150% of the federal poverty line, the SAVE plan uses 225%.
“What that means is that for families of up to four people, that could mean if you’re making $60,000 a year, your monthly student loan payment would be $0 a month,” said student loan expert Robert Farrington. “If you go beyond that 225% of the poverty line, your monthly student loan payment is just five percent of your discretionary income.”
According to the Department of Education, as long as you make full and consistent monthly payments, your loans will be forgiven after 20 to 25 years. Your loan also won’t grow due to unpaid interest.
On top of lowering payments overall, Farrington said there will be more beneficial features under this plan, but borrowers won’t be able to utilize it until July of 2024.
“What’s in effect now is that they are using 225% of the federal poverty line to calculate your monthly student loan payments; however, that calculation today is either 10 or 15% of your discretionary income. Next year, in 2024, [it] will go down to the 5% number,” Farrington explained.
Farrington said this is the best repayment plan for those just starting their undergraduate loans after the 42-month hiatus. Anyone can apply and switch over to this plan, but if you have been paying off graduate student loans, Farrington advised the SAVE plan might not be the best option for you.
“The biggest con is going to be for those with graduate student loans that are already on pay-as-you-earn plan; the reason there might be a con there is because on that plan you get forgiveness after 20 years, if you switch to save it would go out to 25 years so you lose a little bit there on the forgiveness front,” Farrington said.
Other features of the “SAVE” plan include:
- Borrowers with original principal balances of $12,000 or less will receive forgiveness of any remaining balance after making ten years of payments, with the maximum repayment period before forgiveness rising by one year for every additional $1,000 borrowed. For example, if your original principal balance is $14,000, you will see forgiveness after 12 years. Payments made previously (before 2024) and those made from now on will count toward these maximum forgiveness timeframes.
- Borrowers who consolidate will keep their progress toward forgiveness. They will receive credit for a weighted average of payments that count toward forgiveness based upon the principal balance of the loans being consolidated.
- Borrowers will automatically receive credit toward forgiveness for specific periods of deferment and forbearance.
- Borrowers can make additional “catch-up” payments to get credit for all other periods of deferment or forbearance.
- Borrowers who are 75 days late will be automatically enrolled in IDR if they have agreed to allow the U.S. Department of Education to securely access their tax information.
There is no deadline to switch to the SAVE plan, and you can switch your payment plan as many times as you need. To compare the differences of the SAVE plan to other income-driven repayment plans, click/tap here. To enroll in the SAVE plan, click/tap here.
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