Some students are about to be relieved of the weight of student loan payments, as the federal government has come up with a repayment plan known as the Saving on a Valuable Education (SAVE) plan. Introduced by President Biden, this plan will cause a drop in loan repayment for some student loan borrowers, making it the most affordable means of paying for federal student loans.
What is SAVE about?
The Saving on a Valuable Education (SAVE) plan is a new income-driven repayment plan scheduled to take effect from July 1, 2024. This declaration was made last summer by President Joe Biden, and according to the White House, about 8 million borrowers have already signed up for the SAVE plan so far.
The SAVE plan is almost like a replacement for the Revised Pay As You Earn (REPAYE) plan created for students by the U.S. Education department. This plan will provide student loan forgiveness for a duration of 20 to 25 years for undergraduates and graduate students respectively, provided such a student has met the requirements. This is in addition to the monthly payment which is based on a percentage of your discretionary income.
How does SAVE lower the Student Loan payment?
Here’s how the SAVE plan works;
The SAVE plan calculates your monthly loan payment based on a percentage of your discretionary income—that is, the difference between your gross income and 225% of the federal poverty level for your family size —compared to the old REPAYE plan of 150%. This will lead to lower payments compared to plans that consider your total income
For example, let’s say you’re a one-person household living in Florida with an annual income of $30,000. The poverty level for a household of one in your state is $15,060, and 225% of that guideline is $33,885. Since your annual income is less than $33,885, your discretionary income is less than $0, so your monthly payments on SAVE would be $0.
Also, a person who makes about $50,000 will have a monthly bill of $67 using the SAVE plan, compared to the $228 that was paid using the REPAYE plan.
The higher income earners are not left out as they also experience a drop in their loan payment. For instance, if you earn $125,000, instead of paying $853 with the old REPAYE plan, you will pay $380 per month—saving you $473.
The percentage of payment by students towards their undergraduate student debt each month has been slashed from 10% to 5%, and borrowers who got a loan lower than $12,000, in the last 10 years will receive loan forgiveness.
How to lower your Student Loan payments using SAVE
A reduced student bill is automatic; it reflects in your July bill once you enroll for the SAVE plan. However, to benefit from the SAVE plan, your general debt must be greater than one-third of your annual income.
Are you an undergraduate or a graduate student? Apply for the SAVE plan here to potentially lower your student loan payments.
