Let's Talk About Plan B
The Supreme Court stole Christmas for tens of millions of student loan borrowers last June, by striking down Joe Biden’s plan to forgive up to $20,000 of debt per student. In the majority opinion Chief Justice John Roberts wrote that the Administration had the authority to "waive or modify" the HEROS Act, but not to "rewrite that statute from the ground up."
The new "SAVE" plan (Saving on a Valuable Education) is the Administration's attempt to fashion significant loan relief while staying within the "modify" authority under the HEROS Act. Here’s what you need to know about the new plan:
Lower Payments
The new “SAVE” plan focuses on making monthly debt payments more affordable, and only gets around to forgiveness in a decade or two. For many, the required monthly payments can be significantly lower.
For undergraduate loans, your monthly payment will be 5% of discretionary income, vs 10% under REPAYE, the prior plan. Under SAVE, discretionary income is the amount your income exceeds 225% of the federal poverty level for your area and family size, vs. 150% under REPAYE.
For example, a family of 4 making $50,000, with $80,000 of undergraduate student debt, could pay $23 monthly under SAVE, vs $106 under REPAYE. A standard 10 year repayment period wthout subsidies would pay $810 monthly. Over time, as your income goes up, or down, your monthly repayments would be recalculated.
Some Interest Forgiven
If you make your monthly payments, but they are not enough to cover all of the interest each month, the monthly shortfall is forgiven. It is not deferred to be paid at the end of the loan.
Eventually, Some Forgiveness
After 20 years of making monthly payments, the balance of your student debt is eliminated. If your initial loans totaled less than $12,000, you only need to pay for 10 years. But, if your loans covered graduate and undergraduate expenses, you need to hang on a bit longer, 25 years, to see the end of your monthly payments.
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The SAVE plan is not perfect, and it is not available to everyone. However, it is a significant improvement over the previous repayment plans, and it could provide much-needed relief to millions of borrowers.
If you are a student loan borrower, it is important to do your research to see if the SAVE plan is right for you. You can start by visiting the StudentAid.gov website. There, you can find information about the SAVE plan, as well as other repayment options.
If you decide that the SAVE plan is the best option for you, you will need to sign up soon. Interest accruals will start on September 1,2023, and monthly repayments will begin in October.
