In a recent development, the Biden administration has launched an income-driven repayment plan aimed at easing the burden of monthly student loan payments for millions of eligible federal loan borrowers. This new plan, known as the Saving on a Valuable Education (SAVE) Plan, was unveiled by President Joe Biden in late June after his proposal for widespread loan forgiveness was rejected by the U.S. Supreme Court.
Beginning today, borrowers have the opportunity to enroll in the SAVE plan through studentaid.gov. It is worth noting that individuals already enrolled in the REPAYE program will be automatically transitioned to the new initiative.
This initiative comes at a crucial time when federal student loan payments are scheduled to resume this fall following a pandemic-induced hiatus of over three years. The Department of Education has confirmed that interest on these loans will resume starting September 1st, with the first payments due in October. Fortunately, those who sign up for SAVE in the coming days can expect to see their adjusted payments reflected in their first billing statement.
Under the SAVE plan, monthly payments will be calculated based on income and family size, providing borrowers with immediate relief. Furthermore, by next summer, these payments will be further reduced to 5% from the current 10% of income above 225% of the poverty line.
To illustrate the impact of this plan, let's consider a hypothetical scenario. Imagine a recent graduate earning the average starting salary of $55,000 per year for individuals with a bachelor's degree. Under the previous REPAYE program, this individual would owe approximately $276.08 per month, as calculated by student loan expert Mark Kantrowitz. However, with the introduction of SAVE, the borrower's monthly payment would decrease to $184.96 until next summer. Subsequently, the payment will be halved to a mere $92.48.
According to Kantrowitz, "The SAVE plan is essentially a grant after the fact," emphasizing the benefits and relief it offers to borrowers.
In summary, the Biden administration's launch of the SAVE plan presents a promising opportunity for eligible federal loan borrowers to tackle their student loan debt more effectively. By tailoring monthly payments based on income and family size, this initiative delivers immediate and significant relief. Let us explore this new plan and take advantage of the potential benefits it offers.
The SAVE Plan: An Overview
Under the SAVE plan, several types of loans are deemed eligible. These include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that didn't repay any PLUS loans made to parents
However, it's important to note that Parent PLUS loans are generally not eligible for the SAVE plan.
Borrowers with an original principal balance of $12,000 or less will receive forgiveness of any remaining balance after making 10 years of payments. The repayment period before forgiveness increases by one year for every additional $1,000 borrowed. For instance, if your original principal balance is $14,000, you will be eligible for forgiveness after 12 years. The maximum repayment period for undergraduate loans is capped at 20 years.
Elimination of Interest
A significant advantage of the SAVE plan is the elimination of interest. After a scheduled payment is made, 100% of remaining interest is eradicated for both subsidized and unsubsidized loans. This prevents loan balances from growing, even if regular payments do not cover the entire interest owed. Previously, borrowers would make consistent payments but still witness their balance balloon, causing distress.
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