According to expert, student loan bills may soon see “a dramatic drop”! Find out more about it!
Starting July 1, your student loan bills may get smaller due to a feature of the Biden administration’s new income-driven repayment (IDR) plan that will reduce monthly payments for millions of student loan borrowers. Higher education expert Mark Kantrowitz noted that the changes could lead to “a dramatic drop” for many.
President Joe Biden introduced the new program, called Saving on a Valuable Education (SAVE) plan, last summer as “the most affordable student loan plan ever”. The White House reports that around 8 million borrowers have enrolled in SAVE so far.
IDR plans require borrowers to pay a percentage of their discretionary income each month, with loan forgiveness after a set period, usually 20 or 25 years. SAVE replaces the previous REPAYE (Revised Pay As You Earn) plan from the U.S. Department of Education.
Some Americans are already benefiting from SAVE, which exempts 225% of the poverty line from their payment calculation, compared to 150% under REPAYE. This means single borrowers earning less than $33,900 or families of four earning less than $70,200 now have a monthly payment of $0.
And the most significant feature of SAVE, that will reduce the percentage of discretionary income paid toward undergraduate student debt from 10% to 5%, starts in July. For example, a person earning $50,000 annually, who previously paid $228 per month under REPAYE, will now pay $67. At the same time, someone earning $125,000 will see their monthly payment drop from $853 to $380, according to Kantrowitz.
Reduction for Enrolled Borrowers Will Be Automatic
If you are already enrolled in the SAVE plan, your reduced payment should automatically appear on your July bill, Kantrowitz said. Borrowers with both undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income.
To qualify for lower payments, your total debt typically needs to exceed a third of your annual income, he added. Borrowers can apply for SAVE at Studentaid.gov. Those with $12,000 or less in loans may receive forgiveness in 10 years. Payments made under existing IDR or standard repayment plans will count toward the forgiveness timeline.