The “Savings for a Worthwhile Education” plan is the newest income-contingent repayment plan available to federal student loan borrowers, and it’ll become even more affordable this summer.
Currently, monthly payments for SAVE plans are calculated as 10% of a borrower’s disposable income, which is the difference between their adjusted gross income and 225% of the federal poverty line, which works out to $33,885 per year for an individual in 2024, according to the Department of Health and Human Services.
However, a Department of Education spokesperson confirmed to CNBC Make It that payments for undergraduate student loan borrowers currently on the SAVE plan will be reduced to 5% of disposable income in July, effective from the first payment due in July.
According to ED’s calculations, a single undergraduate borrower making $60,000 a year will owe $227 a month in loan payments in 2023. For that same income, that payment would drop to about $109 a month in July.
If your loan accrues interest beyond your monthly payment, the government pays the remainder. If your loan accrues $50 in interest in one month but your payment is only $30, you won’t be charged the extra $20.
If you have undergraduate and graduate loans, your payment will be a weighted average of 5% to 10% of your disposable income based on the original balance of your loans. Borrowers with only graduate loans will be required to pay 10% of their disposable income.
Borrowers who remain on the SAVE plan may have any remaining balances forgiven with as little as 10 years of repayment.
All borrowers with direct federal student loan financing can apply for a SAVE Plan through their loan servicing company, and they can also use Federal Student Aid’s Loan Simulator tool to see if it’s the right repayment plan for them.
Many federal student loan borrowers have struggled to make their monthly payments since payments resumed in October, with more than one in three borrowers saying they wouldn’t be able to make their loan payments within six months, according to a March survey by the Student Debt Crisis Center.
An Allianz Life survey at the end of 2023 found that 66% of borrowers said they would have to reduce their retirement savings to pay off student loans, and some were planning to make compromises.
As of late February, 40% of borrowers hadn’t started or resumed payments since the pause ended, according to a SoFi-sponsored Embold Research survey.
While there are many reasons why borrowers fall behind on their payments, 58% of borrowers say financial strain is making it difficult for them to resume or start repaying their loans, the survey found.
But many borrowers could lower their monthly payments if they knew about their repayment options: While 60% of borrowers have at least some knowledge of IDR plans, more than one in five borrowers are unaware of the different plans available to them, Embold Research found.
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