Last year, the Biden administration announced a sweeping student loan relief program aimed at easing the pressure on borrowers affected by the surge in student loans in recent years. Two key pillars of the administration’s policy are a proposed one-time reversal of federal student loans of up to $10,000 per borrower and a new IDR plan featuring far more borrower-friendly terms than previous existing IDR plans. It was an income-driven repayment (IDR) plan. In the summer, the U.S. Supreme Court nullified the loan forgiveness portion of the administration’s plan. However, a new IDR plan (named the “Savings for Precious Education” (SAVE Plan)) is still in the works, and following a Supreme Court ruling, the Biden administration announced final regulations on the new repayment plan. bottom.
In this post, Ben-Henry Moreland, Senior Financial Planning Geek at Kitces, discusses the new SAVE plan’s features, how it will change the landscape of student loan plans for new and existing borrowers, and how customers with student loans Learn what your financial advisor can do to help you prepare for this issue. The current student loan suspension, which has been in effect since March 2020, will end on August 31, 2023.
A key feature of the new SAVE plan (which replaces the existing REPAYE plan in the IDR plan line-up) will be a reduction in monthly student loan costs for many borrowers by lowering the required payment for loans borrowed for undergraduate education from 10%. to reduce payments. He cuts the discretionary income for borrowers (for those on an IBR, PAYE, or REPAYE repayment plan) to 5%, as well as adjusts and lowers the discretionary income calculation for most borrowers. As a result, undergraduate borrowers will see their payments cut by more than half compared to other plans, while graduate student borrowers will also see their payments cut significantly, albeit to a lesser extent.
In addition, the SAVE plan fixes several issues that existed with other repayment plan options by allowing couples who file separately as husband and wife to exclude their spouse’s income from their monthly loan payment calculations. (which can significantly reduce repayments for borrowers with high spouse income) and fully subsidize loan interest not covered by the borrower’s monthly payments (negative loans for SAVE plan borrowers). guaranteed not to be amortized to
Borrowers on the SAVE Plan will also have expanded options for loan forgiveness under the new rules, with borrowers with original loan totals of $12,000 or less now eligible for forgiveness after ten years of continuous monthly payments ( 20-25 years for other IDRs). option). In addition, you will now be able to obtain forgiveness credits for months in which payments were not made due to various deferrals or grace periods, as well as forgiveness credits for payments on consolidated loans (previously the clock was reset at the timing of forgiveness and grace periods). (was there). To receive the exemption, the borrower had to pay for an additional 20-25 years).
Another impact of the SAVE plan and other new repayment plan regulations announced by the Department of Education is that the number of IDR plans available to borrowers will decrease after the new regulations come into effect on July 1, 2024. Other plans are limited to new subscribers or closed entirely. However, when it comes to student loans, plan what to choose from her remaining IDR options, when to recertify income, and whether to file as a married couple to exclude your spouse’s income. There are still many opportunities.
After all, student loan planning has effectively become a new part of many clients’ financial planning landscapes (with the required payments suspended for three-and-a-half years, what life is like with student loan payments). (because it’s easier to forget if it’s been there), now’s your chance. The advisor helps the client re-navigate the bush of potential her IDR options and clarify the path forward. Because while it was always certain that payments would start up again at some point, until now there was no certainty when or how that would materialize. But with payments coming back in October, now is the time to make sure the transition goes smoothly. As much as possible!