More than 75 million student loan borrowers have enrolled in the U.S. government’s latest repayment plan since it launched in August.
President Joe Biden recently announced this that was him Federal Student Loan Cancellation for nearly 153,000 borrowers who enrolled in the plan, known as the SAVE plan. Forgiveness was granted to borrowers who had made payments for at least 10 years and originally borrowed $12,000 or less.
The SAVE plan was launched last year to replace other existing federal government income-driven repayment plans. Now more borrowers are eligible to have their monthly payments reduced to $0, and many are eligible for lower rates compared to other repayment plans.
For Lauran Michael and her husband, the SAVE plan reduced student loan payments in half.
Since their marriage, both have been paying off her husband’s student loans, which would have been about $1,000 a month when payments resumed after a pause during the pandemic. Under the SAVE plan, their payments are now $530 per month.
“We don’t want our loans to dictate our life choices and for us to be unable to do other things because we’re paying so much money. The SAVE plan is definitely a game-changer for us,” said Michael, a 34-year-old interior designer from Raleigh, North Carolina.
Michael’s family is paying for daycare for their two children with the money they saved from not making payments during the pandemic and reduced payments under the SAVE plan.
If you want to apply for the SAVE plan, here’s what you need to know:
What is an income-driven repayment plan?
The U.S. Department of Education offers several federal student loan repayment plans. Under the Standard plan, borrowers are charged a fixed monthly amount, which ensures that their entire debt is repaid after 10 years. However, if borrowers have difficulty paying this amount, they can enroll in one of several plans that offer lower monthly payments depending on income and family size. These are called income-driven repayment plans.
Income-based options have been offered for years and typically limit monthly payments to 10% of a borrower’s discretionary income. If a borrower’s income is low enough, their bill will be reduced to $0. And after 20 or 25 years, any remaining debt will be paid off.
How is the SAVE plan different?
More borrowers in the SAVE plan are eligible for $0 payments. This plan requires borrowers to make no payments if they earn less than 225% of the federal poverty level — $32,800 per year for a single person. In contrast, the limit for other plans is 150% of the poverty level, or $22,000 per year for a single person.
Additionally, the SAVE plan prevents interest from piling up. As long as borrowers make their monthly payments, their total balance will not increase. Once they make their adjusted monthly payment – even if it is $0 – any remaining interest will cease.
Other important changes will come into effect in July 2024. Student loan payments will be capped at 5% of discretionary income from the current 10%. Those with graduate and undergraduate loans will pay between 5% and 10% depending on the original loan balance.
The maximum repayment period is limited to 20 years for those who only receive a loan for an undergraduate degree and 25 years for those who receive a loan for a graduate degree.
Who qualified for the SAVE plan?
The SAVE plan is available to all student loan borrowers under the Direct Loan Program who have a clean credit history.
Read more about the SAVE plan Here.
How do I apply for the SAVE plan?
Borrowers can apply for the SAVE plan through the Application for income-driven repayment plan via the Ministry of Education website.
How will I find out if my debt has been forgiven?
If you are one of the borrowers eligible for forgiveness under the SAVE plan, you will receive an email from the Education Department.
What other programs can help with student loan debt?
If you worked for a Government agency or a non-profit organizationThe The Public Loan Forgiveness Program offers cancellation after 10 years of regular payments, and some income-driven repayment plans forgive a borrower’s remaining debt after 20 to 25 years.
Borrowers should ensure they have signed up for this best possible income-driven repayment plan to qualify for these programs.
Borrowers who have been cheated by for-profit universities You can also apply for relief through a program called Borrower Defense.
If you want to repay your federal student loans under an income-driven plan, the first step is to do so Complete an application through the Federal Student Aid website.
Will there be forgiveness in the future?
Multiple categories of Borrowers would be entitled to relief under Biden’s second attempt at a sweeping post-Supreme Court nullification rejected his first plan last year.
The proposed plan These include relief for borrowers who have been repaying their loans for at least 20 or 25 years, automatic forgiveness for borrowers who qualify for income-driven repayment plans but are not enrolled, and loan cancellation for borrowers who attended and then left a for-profit college Among other things, they were unable to pay their student loans.
Whether any of the relief will materialize is a looming question as Conservatives vow to fight any attempt at mass student loan cancellations. The new proposal is narrower and focuses on several categories of borrowers who could have some or all of their loans canceled, but a legal challenge is almost certain.
According to the Department of Education, borrowers who are eligible for forgiveness under the SAVE program are currently paying off their loans on a rolling basis.