The Biden administration's broad student loan forgiveness plan was blocked, but the new Saving on a Valuable Education (SAVE) program is moving forward. SAVE is an income-driven repayment plan that could help certain federal student loan borrowers lower their monthly payments and reach loan forgiveness sooner.
How SAVE Payments Work
Like other income-driven plans, monthly payments are based on income and family size. The lower your earnings and higher your family size, the less you pay. Some borrowers with incomes under 225% of the federal poverty line - $32,805 for an individual - have $0 monthly payments. Those above the thresholds owe between 5-10% of discretionary income based on loan types.SourceMoneyGuru-https://www.mgkx.com/5202.html
Potential for Faster Loan Forgiveness
Borrowers who originally borrowed $12,000 or less could have balances forgiven after 10 years of payments starting in 2024. Each extra $1,000 borrowed adds a year before eligibility for cancellation. So borrowers with higher original balances may need to make 20-25 years of payments before forgiveness. Previous qualifying payments can count.SourceMoneyGuru-https://www.mgkx.com/5202.html
How SAVE Differs from REPAYE
SAVE has a lower 5% discretionary income payment cap for undergrads vs. 10% for all loans under REPAYE. The income exclusion is higher at 225% of poverty vs. 150%. Interest that monthly payments don't cover won't grow loan balances like it can with REPAYE.SourceMoneyGuru-https://www.mgkx.com/5202.html
Who Is Eligible?
Any federal loan borrower can enroll in SAVE, even if loans were previously consolidated. Private loans don't qualify. Those already in REPAYE will automatically be moved to SAVE this fall. Others will need to apply.SourceMoneyGuru-https://www.mgkx.com/5202.html
SAVE may take longer to pay off loans - up to 20-25 years. Balances may not decrease if monthly payments only cover some interest. Any cancellation after 2025 could be taxed as income. Other plans could disappear if not used enough.SourceMoneyGuru-https://www.mgkx.com/5202.html
Should You Choose SAVE?
It depends on your circumstances. Use a student loan calculator to compare plans. Prioritize lower payments now or less spent overall? Consult a financial advisor on the pros and cons for your situation before enrolling. While legal challenges remain, SAVE aims to provide a more affordable path for borrowers.SourceMoneyGuru-https://www.mgkx.com/5202.html SourceMoneyGuru-https://www.mgkx.com/5202.html