Key Takeaways
Federal student loan borrowers enrolled in the Saving for a Valuable Education (SAVE) plan will be able to apply for two previously closed repayment plans starting in mid-December.
Currently, SAVE plan borrowers are in forbearance and cannot make payments toward loan forgiveness. Borrowers who qualify for the Public Service Loan Forgiveness (PSLF) plan may want to leave forbearance to work toward forgiveness.
These two revived plans offer borrowers more options and more generous monthly payments than a standard repayment plan or the Income-Based Repayment (IBR) plan.
SAVE borrowers have been held in limbo since July 2024, and the Department of Education expects that lawsuit to last at least five more months. Some may want to apply for a different repayment plan to decrease their uncertainty about the SAVE plan.
The Department of Education is scheduled to open applications for two older repayment plans next week to provide more options for borrowers stuck in limbo.
As ongoing lawsuits have frozen the department’s Saving for a Valuable Education (SAVE) plan, millions of borrowers under the repayment plan were placed into forbearance and unable to make progress toward loan forgiveness.
In reaction, the Department of Education is reinstating repayment plans that may not be as generous as the SAVE plan but could help borrowers in various situations.
What Are My Options?
Since the Eighth Circuit Court of Appeals ordered the government to pause the SAVE program in July, the IBR and the Standard Repayment Plan were the only active choices for borrowers. Enrollees could apply to the SAVE plan, but their loans would be put in forbearance as their application was processed.
Starting next week, borrowers can apply to the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans to get out of the SAVE plan.
Here are the details of each available plan:
Standard Repayment Plan: If borrowers don’t pick a repayment plan, they are automatically placed in this plan. Monthly payments are typically higher than those in other plans because they are fixed and paid over 10 to 30 years.
Income-Based Repayment Plan: Monthly payments generally equal 15% of your discretionary income (the difference between your annual income and 150% of the poverty guideline), divided by 12.
Pay As You Earn Plan: Monthly payments generally equal 10% of your discretionary income (the difference between your annual income and 150% of the poverty guideline), divided by 12.
Income-Contingent Repayment Plan: Under this plan, you would pay the lesser of two options. The first option is monthly payments that take the amount you would pay under a standard repayment plan for 12 years and adjust it to take into account your income and life circumstances, such as if you’re married or have dependents. This formula has a variety of factors and is calculated differently for each person. The other option is payments of 20% of your discretionary income (the difference between your annual income and 100% of the poverty guideline) divided by 12.
When considering student loan forgiveness options, it’s crucial to evaluate your personal needs and circumstances. Some options may be more suitable than others depending on your situation.
If you are seeking Public Service Loan Forgiveness (PSLF), it’s important to note that for several months, borrowers enrolled in the SAVE plan have been unable to make qualifying payments towards total loan forgiveness under the PSLF program. To continue working towards PSLF loan forgiveness, applying to another repayment plan can help you achieve this goal. Payments under any of the available plans can bring borrowers closer to forgiveness. However, depending on your proximity to forgiveness, you might finish paying off your loans before reaching the required 120 qualifying payments under the 10-year standard plan.
For those enrolled in the Standard Repayment Plan, the revived income-driven repayment plans, Income-Contingent Repayment (ICR) or Pay As You Earn (PAYE), can still lower monthly payments for borrowers compared to the standard plan. Borrowers qualify for these plans if their estimated payment is less than what they would pay on a standard repayment plan within 10 years. To qualify for the PAYE plan, you must have received your loans after October 1, 2011, or consolidated your loans.
Borrowers with significant financial decisions ahead need more certainty. Under the SAVE plan, borrowers will be under forbearance until the lawsuits surrounding it are settled. The Department of Education has indicated that borrowers will be in forbearance for at least five more months. The election of Donald Trump has raised concerns among some borrowers about the future of the SAVE and PSLF programs. This uncertainty has placed many borrowers in limbo and prevented them from making significant financial plans until they receive more clarity. If you are facing major financial decisions and need to know what your student loan payments will be long-term, you could apply for any of the available options. If your income qualifies, PAYE or ICR would likely result in the smallest payments.
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