Student Loan Payments Likely to Rise After SAVE Plan Ends

Millions of student loan borrowers enrolled in the Saving on a Valuable Education (SAVE) plan are facing a significant change: the plan has been struck down, which means their previously low or even zero-dollar monthly payments will increase. The SAVE plan was the most affordable income-driven repayment option available, capping payments at a very low percentage of discretionary income.

With SAVE no longer an option, borrowers must switch to other income-driven repayment plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Income-Contingent Repayment (ICR). Each plan has unique eligibility criteria and repayment formulas, but most will result in higher monthly payments compared to SAVE.

For example, a borrower earning $60,000 annually with a $30,000 loan balance at 6.53% interest would pay about $217 monthly under SAVE. Switching to other plans could raise payments anywhere from $70 to $370 per month, depending on the plan chosen. While some plans offer lower monthly payments, they often extend the repayment term, increasing the total amount paid over time.

Understanding Your Repayment Options

Here’s a quick overview of key repayment plans and what they mean for your monthly payments and total loan costs:

• Income-Contingent Repayment (ICR): Payments set at 20% of discretionary income or a fixed 12-year plan, whichever is less. Example monthly payment: $290; total paid: $43,919.
• Income-Based Repayment (IBR): Payments are 10% of discretionary income for loans after July 2014, capped at the standard 10-year plan payment. Example monthly payment: $312; total paid: $41,473.
• Pay As You Earn (PAYE): Similar to IBR with 10% of discretionary income and payment caps. Example monthly payment: $312; total paid: $41,473.
• Standard Repayment: Fixed payments over 10 years, not income-based. Example monthly payment: $341; total paid: $40,932.
• Graduated Repayment: Payments start low and increase every two years over 10 years. Example monthly payment range: $196 to $589; total paid: $43,916.
• Extended Repayment: Fixed payments over 25 years, lowering monthly costs but nearly doubling total payments. Example monthly payment: $203; total paid: $60,937.

Should You Refinance Your Federal Student Loans?

While refinancing to a private lender might seem attractive for lower interest rates, experts generally advise against it for federal student loan borrowers. Refinancing eliminates federal protections such as income-driven repayment options, loan forgiveness programs like Public Service Loan Forgiveness (PSLF), and federal forbearance benefits. This can leave borrowers vulnerable if financial hardship arises.

Preparing for Higher Payments

With the SAVE plan’s payment pause likely ending by late 2024 or mid-2026, borrowers should proactively prepare for increased monthly bills. Experts recommend:

• Using the Department of Education’s loan simulator to estimate new monthly payments.
• Consulting nonprofit student loan advisors for personalized repayment plan guidance.
• Discussing tax strategies with financial professionals to potentially lower adjusted gross income.
• Reviewing and adjusting personal budgets to accommodate higher payments, such as cutting discretionary spending.

Navigating the end of the SAVE plan requires careful planning and understanding of alternative repayment options. By proactively assessing your financial situation and leveraging available resources, you can manage the transition and minimize financial stress.