Student loan payments resume in October. The new SAVE Plan can help lower monthly payments

Brandon Girod, Pensacola News Journal
·7 min read
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Nearly 57,000 Floridians are set to have their student loan debt discharged as more than 2.6 million others in the state are expected to resume payments in October. Thankfully, a new income-driven repayment (IDR) plan introduced by President Joe Biden and the U.S. Department of Education will provide borrowers with a cheaper way to manage those payments.

The Saving on a Valuable Education (SAVE) Plan is an IDR plan that calculates monthly student loan payment amounts based on a borrower's income and family size. The new SAVE Plan is set to replace an already existing IDR plan called the Revised Pay As You Earn (REPAYE) Plan.

The new plan will drop monthly payments down to $0 for borrowers making less than $15 an hour and save others at least $1,000 a year. Here's what you should know.

What is an income-driven repayment (IDR) plan?

IDR plans help borrowers better manage high federal student loan payments. There are multiple IDR plans and most federal student loans are eligible for at least one. These plans are intended to lower borrower's monthly payments by basing them on their income and family size.

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What are the four IDR plans?

The amount borrowers pay under IDR plans is based on a percentage of their discretionary income. The percentage varies based on the plan.

  • Revised Pay As You Earn Repayment Plan (REPAYE Plan): Generally 10% of a borrower's discretionary income.

  • Pay As You Earn Repayment Plan (PAYE Plan): General 10% of a borrower's discretionary income, but never more than the 10-year Standard Repayment Plan amount.

  • Income-Based Repayment Plan (IBR Plan): Generally 10% of a borrower's discretionary income if they were a new borrower on or after July 1, 2014, and never more than the 10-year Standard Repayment Plan amount. The percentage increases to 15% for borrowers who were not new before that date.

  • Income-Contingent Repayment Plan (ICR Plan): The lesser of the following:

    • 20% of a borrower's discretionary income

    • What a borrower would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to their income

Borrowers already on an IDR plan

The SAVE Plan will replace the REPAYE Plan. Borrowers on the REPAYE Plan will automatically be put on the SAVE Plan when it goes into effect. Borrowers on a different IDR plan will need to switch to REPAYE now or wait until the SAVE Plan goes into effect to receive the benefits.

Borrowers can find their IDR plan by logging onto their StudentAid.gov profile, navigating to the My Aid page and scrolling down to view their loans. Each loan will list a repayment plan.

What is the Saving on a Valuable Education (SAVE) Plan?

The SAVE Plan is an IDR plan that will completely replace the REPAYE Plan and will save borrowers money based on how much they earn and their family size.

The SAVE Plan cuts payments on undergraduate loans in half compared to other IDR plans. A single borrower who makes less than $15 an hour will not have to make any payments and borrowers earning more than that will save more than $1,000 a year on their payments compared to other IDR plans.

The plan increases the income exemption from 150% to 225% of the poverty line, eliminates 100% of the remaining interest for both subsidized and unsubsidized loans after a scheduled payment is made under the SAVE Plan and excludes spousal income for borrowers who are married and file separately.

These new changes will go into effect later this summer, with more benefits going into effect on July 1, 2024.

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When do student loan payments resume?

Student loan interest resumes on Sept. 1 and borrowers must resume payments in October. The DOE will notify borrowers before payments resume, and loan servicers will also send billing statements and notices at least 21 days before the payments are due.

How to apply for the SAVE Plan

If you are already enrolled in the REPAYE Plan or if you sign up for the REPAYE Plan today, you will automatically be put on the SAVE Plan when it goes into effect on July 1, 2024.

You can also select the option for your loan servicer to place you on the lowest monthly payment plan, which will usually be the REPAYE Plan.

The SAVE Plan will replace the REPAYE Plan when it goes into effect.

The application for the new SAVE Plan will be available later this summer. You can also sign up by contacting your loan servicer directly.

How much will I pay each month?

While the full SAVE Plan regulations won’t go into effect, some of the plan’s cost-saving measures will begin later this summer. If you make $32,800 a year or less, about $15 an hour, your monthly payment will be $0.

Here is a chart showing estimated monthly payments under the SAVE Plan, according to the DOE.

Additional IDR changes coming in 2023

Other IDR plans will receive the following changes this summer:

  • New integration with the IRS to access financial information -- Borrowers can approve the secure disclosure of tax information which will allow their latest IRS tax info to be pulled automatically. This can be done during the application process or recertifying an IDR plan.

  • Automatic IDR recertification of income and family size -- Borrowers who agree to share their tax information with the DOE will have their enrollment in their IDR automatically recertified and their monthly payment automatically adjusted once a year. Borrowers will be notified when their payment has been updated and can opt out of this entirely.

  • End of interest capitalization when a borrower leaves most IDR plans -- As of July 1, unpaid interest on loans won’t be added to the principal when a borrower leaves any IDR plan, except the Income-Based Repayment (IBR) Plan.

  • Redesigned application -- The application process is faster and will allow borrowers to save their progress and track their applications.

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SAVE Plan benefits going into effect in 2024

The Federal Student Aid website lists several more benefits that will go into effect in July 2024, providing more ways payments will likely be reduced:

  • Payments on undergraduate loans will be cut in half (reduced from 10% to 5% of income above 225% of the poverty line). Borrowers who have undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income based on the original principal balances of their loans.

  • Borrowers with original principal balances of $12,000 or less will receive forgiveness of any remaining balance after making 10 years of payments, with the maximum repayment period before forgiveness rising by one year for every additional $1,000 borrowed. Payments made previously (before 2024) and those made going forward will both count toward these maximum forgiveness timeframes.

  • Borrowers who consolidate will not lose progress toward forgiveness. They will receive credit for a weighted average of payments that count toward forgiveness based upon the principal balance of the loans being consolidated.

  • Borrowers will automatically receive credit toward forgiveness for certain periods of deferment and forbearance.

  • Borrowers will be given the option to make additional “catch-up” payments to get credit for all other periods of deferment or forbearance.

  • Borrowers who are 75 days late will be automatically enrolled in IDR if they have agreed to allow the Department

This article originally appeared on Pensacola News Journal: Student loan payments resume in October. How a new IDR plan can help