By now, most student loan borrowers know that the Biden Administration's plan to forgive as much as $20,000 in federal student loan debt per borrower was rejected by the Supreme Court. However, the other parts of the administration's student loan relief plan are alive and well.
Most notably, the Saving on a Valuable Education (SAVE) plan is on track to join the income-driven repayment (IDR) plans available to borrowers, but this one isn't like the others. Secretary of Education Miguel Cardona recently called the SAVE Plan "the most affordable student loan repayment plan ever available," and that's putting it mildly.
Enrollment for the SAVE plan just opened. Here are five key points that all federal student loan borrowers need to know about the plan and how it works before payments restart in October.
Image source: Getty Images.
Your student loan payments could be much lower
Income-driven repayment, or IDR plans, have been around for years. While the details vary between the plans, the general idea is that borrowers' student loan payments are limited to a certain percentage of their discretionary income -- typically 10% or 15%.
The SAVE plan only requires borrowers to pay 5% of their discretionary income toward undergraduate loans. Borrowers who have graduate school loans will have to pay 10%, though, and people with both types of loans will have a weighted average between 5% and 10%.
The takeaway is that the SAVE plan effectively cuts student loan payments in half for undergraduate borrowers.
Some borrowers' payments could drop to zero
Not only does the SAVE plan reduce the percentage of discretionary income borrowers have to pay, but it also changes the definition of what discretionary income is.
Currently, IDR plans consider discretionary income to be anything above 150% of the amount they earn above the federal poverty level for their family size. The SAVE plan raises this threshold to 225%.
This means that if you have a family of four and earn $67,500 or less, you won't have to make any student loan payments at all. According to the Department of Education, more than 1 million additional borrowers will be able to pay $0 under the SAVE plan.
Your student loan balance will never go up
Even if your required monthly payment is $0, your loan balance will never increase under the SAVE plan.
You've probably heard student loan horror stories that go like this: "I borrowed $80,000 to get my undergraduate degree, as well as a Master's degree. I've been paying on my loans for 15 years, and now I owe $90,000."
The reason is because under other income-driven plans, if the required payment wasn't enough to cover the interest that accumulated on the loan, it was added to the principal. Under the SAVE plan, no borrower who makes their required payments will see their loans grow.
Student loan forgiveness could be closer than you think
The SAVE plan forgives any remaining debt owed by undergraduate borrowers after a 20-year repayment period, and after 25 years for borrowers with graduate school loans. This is the same as most other income-driven plans.
However, the SAVE plan takes it a step further and forgives borrowers whose loans had original balances of $12,000 or less after 10 years in repayment.
In addition, a separate action by the Department of Education involves making a one-time adjustment to borrower's payment counts, ensuring that everyone gets credit for the entire time their loans have been in repayment. This includes when they were enrolled in other repayment plans or in deferment or forbearance.
Millions of borrowers will be automatically enrolled
The SAVE plan is now officially open for enrollment at StudentAid.gov/SAVE. However, it's important to point out that borrowers who were previously enrolled in the REPAYE plan (the most popular existing income-driven plan) will be automatically enrolled in the SAVE plan. (Note: The SAVE plan is replacing the REPAYE plan.)
If you aren't sure if you need to enroll or not, the best course of action is to contact your loan servicer, either by phone or by logging onto their website. You can find out what repayment plan your loans are currently enrolled in, so you'll know if you need to make a change.
According to a fact sheet released by the White House, more than 20 million student loan borrowers could benefit from the SAVE plan. Only 8.5 million federal student loan borrowers are currently enrolled in income-driven plans, and just a fraction of those are enrolled in REPAYE. Therefore, it's important to make sure you get enrolled in the most beneficial plan -- and for virtually all borrowers, that's now the SAVE plan.
