The Saving on a Valuable Education (SAVE) plan, the newest income-driven repayment plan for federal student loan borrowers, is becoming even more affordable this summer. Currently, monthly payments on the SAVE plan are calculated at 10% of borrowers’ discretionary income, which is the difference between adjusted gross income and 225% of the federal poverty line. Starting in July, this percentage will drop to 5% for borrowers with undergraduate debt on the SAVE Plan. This change will apply to payments due in July, potentially saving borrowers a significant amount on their monthly loan payments.
For example, a single undergraduate borrower earning $60,000 a year would currently owe $227 a month towards their loans on the SAVE plan. In July, this payment would drop to around $109 a month, based on calculations by the Education Department. Additionally, if interest has accrued on the loans in excess of the monthly payment, the government will cover the difference. This means that borrowers will not be charged additional interest if their payment does not cover the full amount accrued. The plan also offers forgiveness of remaining balances in as little as 10 years of repayments, making it an attractive option for many federal student loan borrowers.
All federal student loan borrowers with direct loans are eligible to apply for the SAVE plan through their loan servicer. Additionally, the Federal Student Aid loan simulator tool can help borrowers determine if the SAVE plan is the right repayment option for them. Since payments resumed in October, many federal student loan borrowers have reported difficulties in meeting their monthly payments. A significant number of borrowers have expressed concerns about their ability to make payments in the future, with some having to compromise their retirement savings to cover their student debt. Additionally, a significant portion of borrowers have not yet resumed making payments since the payment pause ended.
Embold Research sponsored by SoFi found that as of late February, 40% of borrowers had not started or resumed making payments on their federal student loans. Financial strain was reported as the main reason for borrowers having difficulty in making payments. While some borrowers may be struggling to make their payments, many could benefit from knowing about the different repayment options available to them. A survey by Embold Research found that around 20% of borrowers were not aware of the various income-driven repayment plans that could potentially lower their monthly payments.
To help federal student loan borrowers navigate their repayment options, CNBC’s online course on Effective Communication can provide tips on clear and confident communication, including public speaking skills, body language techniques, and more. Additionally, signing up for CNBC Make It’s newsletter can provide valuable tips and tricks for success in work, money management, and life in general. By utilizing resources like the SAVE plan and educational courses, borrowers can better manage their student loan debt and improve their financial well-being.
