How the new student loan repayment program works.

If you have federal student loans, you may be eligible for a new repayment program that can lower your monthly payments and forgive your debt after a certain period of time. The program is called the Saving on Valuable Education (SAVE) plan, and it was announced by the Biden administration in July 2023. Here are some of the main benefits and features of the SAVE plan:

• It applies to most federal student loans, such as Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans. It does not apply to private student loans, which have different terms and conditions.
• It reduces the monthly payment amount for undergraduate borrowers from 10% to 5% of their discretionary income, which is the income above 225% of the poverty line. For example, if you are single and earn $40,000 a year, your discretionary income is $7,195 ($40,000 - $32,805), and your monthly payment would be $29.98 (5% of $7,195 divided by 12). Under the previous plan, your monthly payment would have been $59.96 (10% of $7,195 divided by 12).
• It offers loan forgiveness after 20 years for undergraduate borrowers and 25 years for graduate borrowers, regardless of the remaining loan balance. However, if your loan balance is less than $12,000, you may qualify for forgiveness sooner.
• It limits the interest accrual on your loans, so that you don’t pay more interest than what your monthly payment covers. This can help you save money and avoid negative amortization, which is when your loan balance grows over time because of unpaid interest.
• It allows Parent PLUS borrowers to consolidate their loans into a Direct Consolidation Loan and enroll in an existing income-driven repayment plan, such as Income-Contingent Repayment or Income-Based Repayment. This can lower their monthly payments and extend their repayment term.

The SAVE plan is expected to help millions of borrowers manage their federal student loans more easily and affordably. However, it may not be the best option for everyone, depending on your income, loan balance, and other factors. If you want to learn more about the SAVE plan and how it can benefit you, please contact me for a free consultation. I can help you create a personalized plan that suits your needs and goals.