It's a situation millions of student loan borrowers were hoping not to be in. This October, after a multi-year pause, federal borrowers will have to start making monthly payments on their student loans once again. And a big reason boils down to the fact that President Biden's plan to broadly forgive student debt was voted down by the Supreme Court.
But that doesn't mean there's no hope for borrowers who are now on the hook for monthly student loan payments. Thanks to President Biden's SAVE Plan, a new repayment option, that debt might become much easier to manage. Here are a few benefits you might reap from the SAVE Plan.
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1. Your payments may be cut in half
The SAVE Plan is an income-driven repayment plan that calculates your monthly student loan payments based on your earnings. This concept isn't new, as income-based repayment plans are already a popular option among borrowers. However, current income-driven repayment plans base payments on 10% of borrowers' discretionary income. The SAVE Plan cuts that percentage to 5%. The result? Lower monthly payments for a lot of people.
2. Your monthly payments may be $0
Income-driven repayment plans calculate your monthly obligation based on your discretionary income. Under the SAVE Plan, discretionary income is calculated as the difference between your adjusted gross income and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for your family size. If you're a single borrower and earn $32,800 or less per year, your monthly student loan payments will be $0.
3. You won't see your loan balance grow because of unpaid interest if you make your required monthly payments
Under the SAVE Plan, you'll be liable for a specific monthly payment. It may be $0, as mentioned, depending on your income. However, as long as you make the payment you're told to submit, you won't have to worry about interest accruing on your balance. In other words, if you accrue $60 in interest on your loans every month but you're only required to make a $50 payment based on your income, you won't be charged that extra $10.
4. You might have your loan balance forgiven after just 10 years of payments
Income-driven repayment plans are already designed to forgive student loan balances after 20 or 25 years of payments, depending on the specific type of plan. Under the SAVE Plan, you could see your loan balance forgiven after just 120 payments, or 10 years, if you borrowed $12,000 or less for college.
Having to repay student loans clearly isn't as ideal as having that debt wiped out. But right now, broad student loan forgiveness does not seem to be in the cards. So borrowers should look to Biden's SAVE Plan as the next best thing that's available to them. In fact, if you're about to have your monthly student loan payments start coming due in October, it pays to apply for the SAVE Plan right away so you can set yourself up with access to the benefits above.
