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The Saving on a Valuable Education (SAVE) plan is a new and updated version of the REPAYE income-driven repayment plan.
Borrowers currently enrolled in the REPAYE Plan will automatically switch to the SAVE Plan when it becomes available.
Similar to the REPAYE plan, the SAVE plan determines monthly student loan payments based on a percentage of the borrower’s discretionary income.
However, the SAVE plan includes other changes that reduce loan costs to borrowers. This article explains the benefits of the new SAVE repayment plan, starting with lower loan repayments.
Reduced loan payments
The new SAVE plan cuts loan payments on undergraduate debt in half from 10% to 5% of discretionary income. Postgraduate and vocational school debt remains at 10% of disposable income. For borrowers with both types of loans, the percentage will be a weighted average between 5% and 10% he depending on the original loan balance of each type of debt.
The definition of discretionary income has also changed, starting from the amount your Adjusted Gross Income (AGI) exceeds 150% of your income. poverty line Up to the amount by which the AGI exceeds the poverty line by 225%. As such, the amount paid is slightly lower, even for graduate students.
This means that borrowers whose income is below 225% of the poverty line will have zero monthly loan payments, up from 150% of the poverty line. For a single family, that would be $32,805 in 2023, a little more than a borrower would earn annually on a $15 hourly wage. $67,500 for a family of four.
The change in the definition of disposable income means that REPAYE plan borrowers will save more than $1,000 a year for a family of one, and about $2,250 a year for a family of four.
Like the REPAYE plan, the SAVE plan is also limited to student loans. Parent plus loans are not covered.
No more negative interest amortization
Excess interest is waived for both subsidized and non-subsidized loans if the borrower’s monthly payment is less than the new accrued interest.
Since the SAVE plan will no longer charge unpaid interest, negative amortization will no longer occur if the borrower’s income is insufficient to repay the debt.
This means that the SAVE plan will no longer increase the borrower’s loan balance. Interest does not accrue interest. For low-income borrowers with an income-based repayment plan, this eliminates the source of student loan stress of having to watch their loan balance grow even after they have paid off their required loans.
Changes in the time it takes to pay off debt
Generally, the lower the monthly loan payment, the more time the borrower will spend paying off the loan. If your payments are low, your debt repayment progress will be slow.
This also applies to some extent to the SAVE plan. More borrowers will continue to take on debt until they reach the 20- or 25-year exemption point.
However, borrowers who start with a lower amount of debt will have their remaining debt forgiven as early as 10 years after they start repaying. A borrower who starts paying off $12,000 in debt will have the remaining debt forgiven after 10 years instead of 20 or 25.
An additional year is added for every $1,000. For example, if the borrower has $13,000 in debt, the remaining debt will be forgiven after 11 years.
Phased introduction
Generally, when a final rule is published, Federal Gazette By November 1st, the new regulations will come into effect the following July 1st. In some circumstances, the U.S. Department of Education may be able to implement new regulations sooner.
The new SAVE repayment plan will be implemented in phases, with some changes coming into effect this summer and some changes on July 1, 2024.
The following changes are coming this summer (2023):
- Change from 150% of income-based poverty line to 225% of poverty line. To see how this changes, check out our updated Discretionary Income Calculator.
- A waiver of interest in excess of payment obligations will also be implemented.
Summer 2024 will see the following changes:
- Discretionary income percentage changed from 10% to 5%.
- Borrowers with low initial loan balances will have their remaining debt forgiven after 10 years.
- Consolidation no longer resets the number of exempt payments. More deferrals and forgiveness count towards forgiveness.
- Automatic use of tax information to calculate monthly payments under SAVE plans. Automatic recertification of income and family structure.
- Borrowers who file federal income tax returns separately as husband and wife will have their loan payments calculated based on their own income only. Spouses are no longer required to countersign the SAVE Repayment Plan Application.
- Borrowers who are 75 days late are automatically enrolled in an income-based repayment plan.
Conclusion
The new SAVE repayment plan includes some welcome changes, especially for undergraduate borrowers, many of which include lower monthly payments and less interest accrued on outstanding balances. Also, if your loan balance is low, your loan forgiveness may occur sooner.
However, it’s important to note that while enrollment for the new Save plan will begin later this summer, some significant changes won’t be introduced until summer 2024.
Editor: Colin Graves
Reviewed by: Robert Farrington
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