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Key Takeaways
- Enrollment in the new SAVE student loan repayment plan, which cuts required monthly payments significantly, has risen 60% since it launched this summer.
- Far more borrowers qualify for $0 monthly payments under SAVE than under previous income-driven repayment plans.
- So far 5.5 million have signed up, though many more may potentially benefit if they switch to the new option.
As the reality of the resumption of student loan payments sinks in, more borrowers are joining a new repayment plan that sets monthly payments for 2.9 million borrowers at $0 per month.
About 5.5 million people were enrolled in the Saving on a Valuable Education (SAVE) plan as of Oct. 23, according to the Department of Education this week. The new repayment plan was created by the department this summer and experts have called it a ‘game changer’ because of how much more favorable to borrowers it is than previous plans.
Out of those 5.5 million, more than half are able to stay current on their loans while making “payments” of $0, with no interest building up, the department said.
The SAVE plan has offered financial relief to student loan borrowers stung by the Supreme Court striking down Biden’s attempt to forgive up to $20,000 per borrower. It’s especially helpful to lower-income borrowers, to the point that some who switched to it were surprised at how low their new payments were.
“Under President Biden, the Department created the SAVE Plan so that young people and working families can climb the economic ladder without unaffordable student loan debt weighing them down,” said Secretary of Education Miguel Cardona in a statement.
The SAVE plan is an income-driven repayment plan in which monthly payments are determined not by how much you owe, but by how much your income is—borrowers have to pay 10% of their discretionary income, and that will drop to 5% in July. After 20 years of payments for undergraduate loans, any remaining balance is forgiven, just like in older income-driven plans such as REPAYE.
The SAVE plan replaced the older REPAYE plan, and borrowers on it were automatically moved to SAVE when it launched this summer, accounting for most of the people currently enrolled in SAVE, the Department of Education said. However, more borrowers have since come on board, and SAVE enrollment has increased 60% since its launch, with 1.8 million borrowers enrolling for an income-driven plan for the first time.
Those borrowers are seeing improvements to their monthly budgets. Even students who still have a payment under the new plan pay $102 a month less on average than they would under REPAYE, the department estimated.
The SAVE plan isn’t for everyone. Borrowers with higher incomes will also have higher monthly payments, and may be better off on a traditional repayment plan and minimizing interest by paying as quickly as possible, student loan experts say.
And the SAVE plan appears not to have completely eliminated the financial pain for lower-income borrowers with federal student loans.
Lower-income households resuming payment on student loans cut back their spending by 2.5% in October, compared to a reduction of a little more than 2% for those who were already making payments during the pause, a Bank of America analysis said Thursday. There was no change in the overall spending of people with higher incomes.
Many of the nation’s 43 million federal student loan borrowers could still benefit by signing up for the new plan—“most” borrowers would have lower payments switching to SAVE, Undersecretary of Education James Kvaal said in a statement.
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November 10, 2023 at 02:24AM
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