The Supreme Court struck down President Joe Biden's plan to forgive up to $20,000 in federal student loan debt per borrower and payments resume this October. The Biden administration says it is dedicated to helping borrowers and finding ways to address the broken student loan system.
One way it aims to help is by redesigning the current income-driven repayment options.
When Biden first announced his debt forgiveness plan last August, he said the administration would be taking steps to reduce monthly payments, especially for low-income borrowers.
He later announced changes to the Revised Pay as You Earn plan that would go into effect in 2024. But some of those changes are rolling out now under the new Saving on a Valuable Education plan.
The SAVE plan will replace the existing REPAYE plan and offer the lowest monthly payment of any IDR plan available, the Education Department announced last week. The plan and some of its money-saving benefits will be available by the time payments resume in October.
Here's how the SAVE plan works and how you may be able to use it to manage your loans.
What is the SAVE plan?
The SAVE plan should be available for borrowers beginning this summer with the following changes:
1. Bigger income protections
Similar to the REPAYE plan, the SAVE plan caps monthly payments at a percentage of your discretionary income, currently 10%. Under the current system, your discretionary income is defined as the difference between your adjusted gross income and 150% of the federal poverty guideline, or about $21,870 for an individual in 2023.
Beginning this summer, that discretionary income threshold will go up to 225% of the poverty line, or about $32,800 for individuals. So any borrower earning that salary — which is about $15 an hour for a full-time worker — or less could qualify for a $0 monthly payment on the SAVE plan.
2. Cap on interest payments
Additionally, it will be easier for borrowers to actually make progress on their loan repayment on the SAVE plan because it eliminates interest that exceeds your monthly payment. For example, if a borrower's loans accrue $50 in interest in a month, but their monthly payment is set at $30, the remaining $20 would not be charged, according to ED.
Under the current plan, the government covers any interest charges in excess of your monthly payment for subsidized loans for up to three consecutive years, and half of the interest after that. You're responsible for half the excess interest charges on unsubsidized loans at all times.
3. No co-sign required for married borrowers
Borrowers will be able to apply for the SAVE plan without having their spouse co-sign. Current REPAYE regulations require married borrowers to report their spouse's income — regardless of whether they file their taxes jointly or separately — and it is used to determine their monthly payments.
Married borrowers who file separately can apply for the SAVE plan without reporting their spouse's income.
How do I apply for the SAVE plan?
Borrowers currently enrolled in the REPAYE plan will automatically be transferred to the SAVE program later this summer, ED says.
If you're currently on an IDR but not REPAYE, you can switch your plan to REPAYE to be auto-enrolled in SAVE when it launches, or wait until the SAVE application is released later this summer.
You can apply for an IDR if you're not on one currently and select REPAYE if you want to enroll in the SAVE plan when it becomes available.
Borrowers who apply for SAVE or another IDR plan this summer will have their applications processed in time for their first payment due date this October, according to the Department of Education.
Additional SAVE plan benefits coming next year
In addition to the updates rolling out this summer, the SAVE plan will have these benefits beginning in July 2024:
1. Smaller monthly payments
Beginning next year, monthly payments on undergraduate loans will be cut from 10% of your discretionary income down to 5% of your income above 225% of the federal poverty line. Borrowers who took out loans for graduate school will pay a weighted average between 5% and 10% of their discretionary income, depending on the original principal balance of their loans.
2. Faster track to loan forgiveness
Those on the SAVE plan who borrowed $12,000 or less in federal loans will have any remaining balances forgiven after 10 years of payments. Every additional $1,000 borrowed above $12,000 will add a year to that loan term before forgiveness. For example, someone who borrowed $14,000 in federal loans can have their remaining balance forgiven after 12 years of payments on the SAVE plan.
Currently, borrowers on IDR plans can only have their remaining balances forgiven after 20 or 25 years of payments.
Additionally, borrowers who consolidate their loans will not lose all their progress toward forgiveness. Under normal circumstances, if you consolidate your loans after you've started making payments on an IDR, you will lose any progress you had made toward forgiveness.
A one-time adjustment currently allows borrowers who consolidate their loans before the end of 2023 to receive credit toward IDR or Public Service Loan Forgiveness if they're on either track. But after this period, borrowers who consolidate will receive some credit for payments made prior to consolidating.
On the SAVE plan, borrowers who consolidate their loans will receive a weighted average of payments that count toward forgiveness, depending on the principal balance of the consolidated loans.
3. Deferment and forbearance support
The SAVE plan will add flexibility for borrowers who put their loans in deferment or forbearance at any point.
Borrowers will automatically receive credit toward forgiveness for certain periods of deferment or forbearance, according to ED, and borrowers will be able to make "catch-up payments" to receive credit for other deferment and forbearance periods.
4. Automatic enrollment
Beginning next July, borrowers who have granted ED access to their tax information will be automatically enrolled in an IDR plan if they are 75 days late on their loan payment.
Your federal loans are considered delinquent the day after you miss a payment, but your loan servicer doesn't report it to the national credit bureaus until you're 90 days delinquent. The automatic enrollment won't necessarily reduce your monthly payment to $0, but it should make your monthly payment more manageable and help you avoid defaulting on your loans.
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