Due to regulatory changes, this post may no longer be our best advice to student loan borrowers, but has been retained for archival purposes.

New IDR Plan = SAVE

As student loan borrowers prepare to resume making payments this fall, they can look forward to enjoying a new-and-improved income-driven repayment (IDR) plan to help them save money. Borrowers first got this news back in January when the Department of Education announced that it would be revising the REPAYE plan, but Ed. has decided—instead of revising it—to replace it altogether. The new plan, SAVE (Saving on a Valuable Education), will be phased in over the next year and promises to be the most affordable plan yet.

Save Some on Your Student Loans Now, Some Later

SAVE will include a number of elements to help borrowers pay less on their monthly student loan bill, some of which will be implemented soon, while others will come over the next twelve months. Things you can expect to see soon include:

• a larger exemption for low-income borrowers, increasing the minimum income borrowers have to make (from 100 or 150% of the federal poverty limit to 225%) before they have to make any payment on their IDR plan
• waiving excess interest over and above the monthly payment, so that interest doesn’t get added to borrowers’ principal balances
• allowing married borrowers to file their taxes separately without their spouse’s income being counted toward how much their monthly payment should be (as it is under the current REPAYE)

Larger Adjustments to IDR Plans to Come Later

The immediately approaching modifications to IDR will benefit some borrowers, but not necessarily all of them—the more universal benefits will be implemented over the coming year. The Dept. of Ed. intends to have SAVE completely operational by July of 2024, at which point it will have phased out REPAYE. Other plans such as ICR and PAYE will remain available for those already using them, but if a borrower switches to SAVE, they won’t be able to switch back. The benefits of SAVE, however, seem ample enough that it’s unlikely borrowers would choose to abandon it. Among the changes we can expect by July 2024 are:

• a lower repayment formula, which will reduce the amount of money a borrower owes from 10-20% of their monthly discretionary income to 5-10% (depending on the types of loans held).
• a shortened timetable for some borrowers to receive student loan forgiveness. Instead of the typical 20-25 years to receive IDR forgiveness, those who borrowed less than $12,000 will have their balances forgiven after 10 years.
• simplified processes for IDR and PSLF applications, and income recertification

Unless you are a fairly low-income borrower, the changes that will be made in time for payments to resume in October likely won’t have a major impact on your repayment, at least not until tax time next year. So instead of worrying about a possible new repayment plan, you’d be better served to focus your energy on making sure you’re ready to resume payment on your current plan. If you have any questions about how the new, or upcoming, changes to IDR impact you, give your student loan professional a call, and make sure you know how to get ready to SAVE.

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