July 7th, 2023 7:00am PDT
(PenniesToSave.com) – The White House has recently unveiled a new initiative called the Saving on a Valuable Education (SAVE) plan, designed to enhance the affordability of student loan repayment. This comprehensive plan replaces the previous Revised Pay As You Earn (REPAYE) program and is being touted as the most accessible repayment option yet.
The SAVE plan aims to reduce monthly payments for borrowers and completely waive them for individuals who meet specific income criteria. Furthermore, it will ensure that no unpaid interest builds up as long as payments are made punctually.
The SAVE plan has the potential to eliminate the remaining debt for up to 85% of community college borrowers within just 10 years by reducing the length of monthly payments.
Lower Monthly Payments
To better support borrowers, the White House has put forward proposed changes to the Revised Pay As You Earn (REPAYE) plan. One key modification is an increased income threshold for repayment, offering borrowers greater financial protection. Currently, borrowers are safeguarded up to 150 percent of the Federal poverty guidelines. However, under the newly suggested regulations, this protection would extend up to 225 percent.
To illustrate the significance of this, earning 225 percent of the Federal poverty guidelines equates to earning approximately $15 per hour based on the 2022 guidelines for a single borrower working full-time. As a result, a single borrower making less than $32,800 annually would have their monthly payments reduced to zero dollars. Similarly, a borrower in a household of four with an annual income below $67,500 would also qualify for zero dollar payments.
Existing income-driven repayment (IDR) plans currently offer protections at approximately $20,400 and just above $41,600 respectively. The proposed changes seek to provide borrowers with even more relief and support in managing their student loan repayments.
Key Features of the SAVE Plan
- Monthly payments will be significantly reduced for borrowers. The required amount they need to pay each month will be halved, decreasing from 10% to just 5% of their discretionary income.
- Payment Exemption: The plan guarantees that borrowers who earn less than 225% of the federal poverty level, which is approximately equivalent to a single borrower earning a $15 minimum wage, will be exempt from making any monthly payments.
- Loan Forgiveness Made Easier: Under the new guidelines, borrowers who started with loan balances of $12,000 or less can now qualify for loan forgiveness in just 10 years, instead of the previous requirement of 20 years. This offers them a faster path to becoming free from debt.
- Interest Exemption: Borrowers under the plan will not accrue any unpaid monthly interest, even if their monthly payment is $0 due to low income. This provision offers relief by halting the accumulation of interest and preventing loan balances from escalating further.
Even residents of Hawaii and Alaska, where the cost of living is higher, will benefit from the new plan with even higher income thresholds compared to other states. This means that borrowers in these states who have incomes exceeding those thresholds can save a minimum of $1,000 annually compared to other income-driven repayment (IDR) plans. The reason behind this savings is that under the new plan, borrowers will only be required to pay half of what the most generous IDR plan requires above the increased threshold of 225 percent.
Undergraduate loan borrowers will only need to make payments of 5% of their discretionary income. If a borrower has both undergraduate and graduate loans, the payment will be calculated using a weighted average between 5% and 10% based on the original principal balances.
In order to prevent borrowers from continuously increasing their loan balances, the new regulations will stop unpaid interest from accruing as long as monthly payments are made. This includes borrowers who qualify for zero-dollar monthly payments. The goal of this measure is to provide borrowers with more financial stability and assist them in effectively managing their student loan debt.
Qualifications, How to Apply?
If you’re already enrolled in the Revised Pay As You Earn (REPAYE) program, you’ll be automatically switched to the new Saving on a Valuable Education (SAVE) program. However, if you’re currently on a different income-driven repayment (IDR) plan, you have the option to switch to REPAYE now and be enrolled in SAVE when it officially launches. Alternatively, you can wait until the SAVE application becomes available later this summer before making your decision.
If you are not currently enrolled in an income-driven repayment (IDR) plan, you can apply for one and select the Revised Pay As You Earn (REPAYE) plan to participate in the SAVE program.
For more details of the SAVE plan click here.