For borrowers, understanding the potential duration of the SAVE litigation forbearance is crucial as they navigate this uncertainty. Here’s why these lawsuits could drag on for years, potentially ending up in the Supreme Court.

Lawsuits Take Time to Resolve

While the challenges against the SAVE plan have just begun, federal lawsuits typically take a significant amount of time to resolve. On average, federal civil cases can take about one year to resolve, depending on the complexity of the case and the court’s schedule. However, this statistic includes dismissals and if we just look at cases that go to trial, resolution at the district court level takes on average two years.

For complex cases like the SAVE lawsuit, the timeline could extend even further, potentially exceeding two years.

Appeals and the Potential for a Supreme Court Hearing

After a district court decision, either party can appeal to the circuit court. If two circuits reach different conclusions, it creates a circuit split, making it more likely that the Supreme Court will review the case to ensure consistent legal interpretation nationwide.

Currently, there are two different lawsuits challenging the SAVE plan, each in a separate circuit, which increases the likelihood of divergent rulings.

The Supreme Court, however, is selective in the cases it hears. It receives approximately 7,000 petitions annually but typically accepts only about 100 to 150 of them. For a case to be heard, at least four of the nine justices must agree to grant a writ of certiorari. Cases that involve significant national issues or present unresolved questions of federal law—such as the extent of executive authority in creating repayment plans—have a higher chance of being reviewed. This is especially relevant for the SAVE litigation, given its similarity to previous student loan cases that went to the Supreme Court and the possibility of a circuit split.

How Long the Supreme Court Process Takes

If the Supreme Court agrees to hear a case, the timeline can extend considerably. From the time a case is accepted for review, it generally takes three to six months before oral arguments are heard, as both sides prepare their briefs. After oral arguments, the justices deliberate, and it often takes an additional three to six months for a decision to be issued, depending on the complexity of the case. Altogether, if the Supreme Court becomes involved, it can easily add another year to the case.

Where Is the Line Drawn?

The SAVE litigation isn’t just about student loan policies; it raises broader questions about the scope of presidential authority. The central issue is how much power Congress granted the executive branch to create or modify repayment plans. While previous plans like Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) were established using similar statutory authority without judicial intervention, the SAVE plan’s scope is under closer scrutiny.

Most agree that there are limits. For instance, the President cannot unilaterally create a repayment plan that charges borrowers zero dollars per month for incomes below $3 million per year, with loan forgiveness after just five months. Such an extreme measure would effectively cancel all student debt, which would clearly exceed Congressional authority.

The question for the courts to decide is whether or not SAVE exceeds the authority granted by Congress.

How Long Will SAVE Litigation Forbearance Last?

Given the complexities outlined above, borrowers may face a lengthy period of uncertainty. The SAVE litigation forbearance—which pauses payments and interest accrual while legal challenges are pending—could last as long as the court process continues, potentially stretching several years if the case goes through multiple appeals and ends up before the Supreme Court.

While both parties in these cases will be interested in resolving the case quickly, given the high stakes, it could easily last three years before the cases are resolved.

Will the Election Impact the Lawsuit? The outcome of the 2024 election could impact how long the lawsuit lasts. A Harris administration would almost certainly continue to pursue the SAVE plan. A Trump administration may decide against moving forward with the lawsuit and start the process of unwinding the SAVE regulations.

What Does This Mean for Borrowers?

• Extended Uncertainty: Borrowers might experience long periods of financial ambiguity while waiting for a final resolution.
• Challenges in Financial Planning: The uncertainty around payment obligations makes it difficult to plan for major financial decisions.
• Staying Informed Is Key: Following legal developments can help borrowers prepare for different potential outcomes.
• Avoid Mistakes: Borrowers shouldn’t make extra payments during this forbearance as it won’t count toward forgiveness.

Conclusion

The SAVE litigation is likely to be a drawn-out battle, especially if the case proceeds through appeals and reaches the Supreme Court. While legal proceedings can be unpredictable, understanding the process can help borrowers make informed decisions and prepare for what lies ahead.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Why the SAVE Lawsuit Could Drag on for Years and Reach the Supreme Court appeared first on The Student Loan Sherpa.

Because this situation could potentially last for years, depending on how long the legal process takes, many borrowers are unsure how to navigate it.

In most cases, the advice is simple: don’t make extra payments. The analysis differs for borrowers working toward full repayment versus those pursuing forgiveness, but the conclusion remains the same—making unnecessary payments is a mistake.

Extra Payments Don’t Help Chasing Forgiveness

When it comes to making extra payments during forbearance, the most important thing for borrowers pursuing forgiveness is this: extra payments don’t help. Payments only count toward forgiveness if you receive a bill first. Paying more than what is due or making multiple payments doesn’t provide any benefit. You’re simply reducing a balance that will eventually be forgiven anyway.

This holds true regardless of the type of forgiveness you’re pursuing.

PSLF Borrowers Should Use the Buyback Program

If you’re working toward Public Service Loan Forgiveness (PSLF), the forbearance period won’t count toward forgiveness. Everything is paused. The good news for PSLF borrowers is that the buyback program exists.

Though the PSLF buyback is a newer, unproven process, and its costs are hard to project because we don’t know what will happen with SAVE, the best move for most PSLF borrowers is to put the money you’d use for extra payments into a savings account.

Once you reach ten years of public service work, you can use the funds you’ve saved for the buyback. This approach ensures that the money you spend toward your student loans will actually reduce your balance.

IDR Forgiveness Borrowers Don’t Gain From Extra Payments

Borrowers working toward 20- or 25-year Income-Driven Repayment (IDR) forgiveness don’t have the buyback option that PSLF borrowers do.

These borrowers face a tough decision: either pause their progress toward IDR forgiveness or switch to a different repayment plan.

Switching plans is particularly challenging right now because servicers are months behind in processing applications. Moreover, moving to a more expensive plan may end up costing more in the long run—especially if SAVE ultimately prevails in court.

Because making extra payments won’t bring borrowers any closer to forgiveness, the best approach is likely to set the money aside in a high-yield savings account. These funds can be earmarked for the potential tax bill that may arise if forgiveness occurs after 2025.

While there’s hope that time spent under the SAVE litigation forbearance will eventually count toward IDR forgiveness, borrowers can’t rely on it. For now, using the forbearance as an opportunity to build up an emergency fund or pay off other high-interest debt is a smart option.

Want to Switch Plans? If you are eager to get off of SAVE an into a repayment plan that can count toward forgiveness, the online application is not currently available.

Borrowers that wish to swtich back to their old IDR plan will have to use a paper application and submit it via their servicer’s secure portal.

Full Repayment Borrowers Have Better Options

For many borrowers, forgiveness isn’t likely. With growing incomes and shrinking balances, their debt will be repaid long before it could be forgiven.

For borrowers in this situation, enrolling in SAVE and taking advantage of the interest-free forbearance is an incredible opportunity. Pausing interest charges means that 100% of your monthly payments will go toward your principal balance.

However, making extra payments now isn’t the best strategy.

The better option is to put the money into a high-yield savings account during the pause. The more you can save, the better. When the pause nears its end, you can make a large lump-sum payment.

This approach has two advantages. First, it puts interest to work for you instead of against you. Normally, repaying debt is a battle against interest charges, but now, you can earn interest on future payments while your balance remains steady. If you manage to set aside $10,000 in a savings account earning 4% interest, after a year, you’ll be $400 ahead.

Second, this strategy provides flexibility. If your car breaks down or you face an unexpected expense, you can dip into your student loan savings. If you’ve already given that money to MOHELA, it’s usually gone forever.

The One Situation Where Extra Payments Make Sense

If you’ve struggled with managing money in the past and worry that seeing a large balance in your savings account might tempt you to spend it, your strategy might shift.

For example, if you’re close to fully repaying your student loans, one reasonable approach might be to take advantage of 0% interest charges and aggressively pay down the balance until it’s gone. If watching the balance drop each month motivates you, and you’re concerned about being tempted by savings, do what works best for you.

Final Thoughts on the SAVE Litigation Forbearance

We’re in a unique situation right now.

Switching repayment plans is more difficult than usual. The SAVE litigation forbearance comes with both benefits and drawbacks. Most confusing of all, the situation could change in a few months—or stay the same for several years.

It’s not easy to plan.

If you have questions about your situation, feel free to ask in the comments. If you want to find a way to make the most of the SAVE forbearance, let’s set up a call to discuss it.

While this is undoubtedly a confusing time for borrowers, it also presents opportunities.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Extra Payments During SAVE Litigation Forbearance Are a Mistake appeared first on The Student Loan Sherpa.

This combination of legal and regulatory uncertainty is particularly frustrating for borrowers who are trying to plan their finances and choose the best repayment strategy. Understanding the current state of these plans and the potential impacts of the ongoing legal battles is essential for borrowers trying to figure out what to do next.

Sherpa Thought: This article focuses on the consequences of the SAVE litigation. If you want to know more about the SAVE lawsuit, be sure to check out this article.

Current State of IDR Enrollments

As of now, borrowers can enroll in any IDR plan except REPAYE, which has been replaced by the SAVE Plan. However, the enrollment process has become more complex due to ongoing litigation:

• Application Process: Borrowers must submit a paper application or upload a completed PDF application through their loan servicer’s website. Online applications are not currently available due to the legal challenges.
• Administrative Forbearance: Once a new IDR application is submitted, borrowers are placed on administrative forbearance for up to 60 days. During this period, interest accrues on the loans, but the time counts toward both IDR forgiveness and Public Service Loan Forgiveness (PSLF).
• General Forbearance: After the 60-day administrative forbearance, borrowers are moved to general forbearance if the application process is still ongoing. During general forbearance, interest does not accrue, but the time spent in this status does not count toward forgiveness.

PAYE, ICR, and REPAYE: The Impact of SAVE and Litigation

PAYE, ICR, and REPAYE were all created under the same congressional authority as the SAVE Plan. This shared origin has raised concerns about the long-term outlook of these plans, especially after a broad and arguably unclear preliminary injunction cast doubt on forgiveness under any of these plans.

However, it’s important to note that ICR, PAYE, and REPAYE should not be impacted by any final ruling in the SAVE case. The plaintiffs in the SAVE litigation are not seeking to overturn the regulations governing these older plans. Additionally, the Administrative Procedure Act (APA) makes it difficult to challenge regulations that have been in place for over six years, which provides an additional layer of protection for ICR, PAYE, and REPAYE. This makes new lawsuits and future challenges to PAYE, ICR, and REPAYE unlikely.

Even though the rules for these plans are unlikely to be overturned or challenged directly, they can still be eliminated by the SAVE regulations. As the later sections explain, SAVE as currently written significantly impacts these other IDR plans and could phase them out over time.

Thus, the outlook for all IDR plans is direcly impacted by the SAVE ligitation. If SAVE wins in court, availability of some plans becomes limited. If SAVE loses, we revert back to older rules. Because each plan is different, the potential changes and impacts from SAVE are also slightly different.

PAYE: What Happens if SAVE Survives vs. SAVE Gets Struck Down

PAYE (Pay As You Earn) is currently closed to new enrollments under the SAVE regulations. Borrowers who were already enrolled in PAYE can remain on the plan, but no new borrowers can sign up.

If the SAVE Plan survives the ongoing litigation, PAYE will remain closed to new borrowers. However, if the new SAVE regulations are struck down, PAYE could be reopened for new enrollments, allowing borrowers to choose this plan if it better suits their financial situation.

ICR: Different Rules for Parent PLUS Borrowers

ICR (Income-Contingent Repayment) remains available for borrowers with Parent PLUS loans, but it is otherwise closed to new enrollments, similar to PAYE.

If the SAVE regulations continue, ICR will remain an option solely for Parent PLUS borrowers. However, if the SAVE Plan is overturned, ICR could once again become available to all borrowers, offering another option for those who might benefit from its unique terms.

IBR: Statutory Certainty

IBR (Income-Based Repayment) is currently available to eligible borrowers and is considered a secure option due to its statutory foundation.

The SAVE litigation revolves around whether the Department of Education exceeded its authority granted by Congress when creating the SAVE Plan. IBR, however, is fundamentally different because its terms and conditions were established directly by Congress. This means that any changes to IBR would require new legislation, providing a stable and secure option for borrowers.

Under the SAVE regulations, borrowers who have been on SAVE for a total of 60 months are not eligible to sign up for IBR. If SAVE is struck down, this 60-month restriction would likely be eliminated, ensuring that IBR remains accessible to all eligible borrowers.

REPAYE: Modified and Replaced by SAVE

REPAYE (Revised Pay As You Earn) has been modified and renamed to become the SAVE Plan. Borrowers who were previously enrolled in REPAYE were automatically transitioned to SAVE. As a result, REPAYE is no longer available for new enrollments.

If the SAVE Plan survives, REPAYE will be permanently replaced by SAVE. However, if the SAVE Plan is struck down, REPAYE could be reinstated, allowing borrowers who preferred REPAYE’s terms to once again enroll in the plan.

It is also likely that if SAVE is struck down, borrowers who signed up for SAVE will be moved back to REPAYE.

Expect More Changes Ahead

The future of PAYE, IBR, REPAYE, and ICR hinges on the outcome of the SAVE litigation, but the legal protections and statutory foundations of these plans offer some security.

Borrowers should remain informed about ongoing legal developments and understand how different scenarios might impact their repayment options. Whether SAVE survives or gets struck down, understanding the current state of these plans and their potential future is crucial for making informed decisions about your financial future.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post The Future of PAYE, IBR, REPAYE, and ICR: Navigating Uncertainty and Understanding Your Options appeared first on The Student Loan Sherpa.

While owing zero dollars each month certainly has its advantages, there are some disadvantages that borrowers face. For starters, not having to make a payment doesn’t prevent the accumulation of interest on the loan. This means that borrowers may end up having to pay more over the life of their student loans. Secondly, a zero-dollar payment presents some challenges on credit applications, especially mortgages.

As a result of these disadvantages, many borrowers wonder if they can, and if they should, pay more than the $0 per month minimum payment on their federal loans.

Can I pay more than the minimum on a federal repayment plan?

The federal government charges no prepayment fees on student loans.

This means that borrowers can pay more than the minimum on their loans whenever they like.

Paying extra can be a smart strategy because it prevents the accumulation of interest on the loan. Borrowers worried about interest should also keep a close eye on events that trigger interest capitalization. Missing an income certification deadline for an Income-Driven Repayment plan can cause the interest to be capitalized and force borrowers to pay interest on a larger loan balance.

While paying extra certainly helps borrowers reduce the damage caused by interest, extra payments are not always the best strategy…

Should I pay more than the minimum on a $0 per month federal loan?

Even if borrowers can pay extra on their federal debt, it doesn’t mean they should.

A common mistake in student loan planning is just focusing on monthly payments. The goal, and primary focus, should be on debt elimination.

Many borrowers will conclude that they will have to pay their federal loans off in full. These borrowers should very seriously consider paying as much as possible to keep the balance low.

However, other borrowers may consider student loan forgiveness as their debt-elimination strategy. Public Service Loan Forgiveness is perhaps the best-known forgiveness program, but there are also forgiveness programs for all borrowers on Income-Driven Repayment plans. These plans include Income-Based Repayment (IBR), Pay As You Earn (PAYE), Saving on A Valuable Education (SAVE), and Income-Contingent Repayment (ICR). Student loan forgiveness takes 10 to 25 years on these plans.

In some cases, chasing after student loan forgiveness will end up costing more than just paying off the loan, so there is some math and planning that will have to take place.

The key is to evaluate whether or not forgiveness is a possibility. If forgiveness might be an option, it usually won’t make sense to pay extra on the loans.

Additionally, if you are on SAVE and qualify for the subsidy, in almost all cases the best strategy will be to make minimum payments.

Note on Taxes: Certain forms of forgiveness do come with taxes. Borrowers should plan for taxes on any student debt that might be forgiven.

Could paying extra help qualify for forgiveness?

Most borrowers going after Public Service Loan Forgiveness know that they are required to make 120 certified payments before their loans are forgiven.

Borrowers that qualify for $0 payments don’t actually have to make a payment, so they may fear that they could lose out on a year of public service work. Many propose making small monthly payments each month to have a record of payments to count towards 120.

The good news for PSLF people who have $0 monthly payments is that those $0 monthly payments will still count towards PSLF. They certainly have the right to pay $5 or $10 per month towards their loans, but it isn’t necessary. The important step that these borrowers should be taking is to submit an employer certification form (ECF) each year. Properly submitted ECF forms will give borrowers a tally the number of payments they have on record towards the required 120.

Will paying extra help qualify for a mortgage or car payment?

Mortgage applications can be complicated for borrowers on Income-Driven Repayment plans.

The good news is that the mortgage underwriting rules have improved considerably for student loan borrowers over the past few years. In the past, many monthly payments on IBR, PAYE, and SAVE were not eligible to be used in mortgage calculations. Instead, lenders used 1% of the student loan balance. For many borrowers, this wrecked their debt-to-income (DTI) ratio and sunk their chances of getting a mortgage.

Today, lenders are more willing to use actual payments on Income-Driven Repayment plans. The problem with a $0 payment is that it looks just like a deferment or a forbearance on a credit report. Lenders will not use a deferment or forbearance in payments when calculating DTI. They will want to know what the payments will be one repayment starts back up. They may also choose to use 1% of the loan value.

Some borrowers may be able to persuade a mortgage company that the $0 payment is an actual monthly payment so that it doesn’t hurt their mortgage application. Others may not be so lucky.

One thing that will not help is paying a bit extra each month.

Mortgage lenders look at credit reports when making credit decisions. They don’t care about prior payments. Borrowers with $0 per month payments can’t beat the system by paying $5 or $10 per month, because their credit report will still show a $0 per month minimum monthly payment.

When should I pay more than the $0 payment?

Borrowers who qualify for a $0 payment will benefit from paying extra because it will fight interest and prevents the balance of the loan from growing out of control.

Unfortunately, paying a little bit extra won’t help borrowers qualify for forgiveness or qualify for a mortgage.

Paying Extra for SAVE Subsidy Recipients

If you are on the SAVE plan an qualify for a subsidy, things get particularly interesting.

For those not familiar, the SAVE subsidy covers the excess interest that accures each month. This ensures that borrowers on the SAVE plan don’t see their balances spiral out of control. As long as you are on SAVE, your balance won’t increase.

What happens if you pay extra?

The good news for borrowers is that the extra payment will lower the principal balance. This means you can take advantage of the SAVE subsidy and reduce your debt burden.

However, making extra payments on SAVE isn’t always the best approach. I’d argue that most borrowers are better off making minimum payments on SAVE and finding a more effective use for the “extra” payments.

Ultimately, the SAVE subsidy gives borrowers a ton of flexibility. By understanding how it works, you can use it to the fullest advantage.

The post Can I pay more than the minimum on my IBR, PAYE or SAVE payment plan? appeared first on The Student Loan Sherpa.

The calculator below was created using the exact terms as defined in the federal registrar. The Department of Education has also released a fact sheet that provides a nice summary of the new SAVE plan.

Sherpa Tip: This calculator estimates SAVE payments using the fully implemented SAVE calculation. This means that undergraduate and graduate loan balances are needed. Scroll down for more details.

It has been updated to include the new 2024 Federal Poverty Level Guidelines.

REPAYE, New REPAYE, and SAVE

The new SAVE plan will essentially replace several different IDR plans.

Notably, the REPAYE plan has been completely replaced by SAVE plan.

By July 1, 2024, the transition from REPAYE to SAVE should be complete. At that time, the calculations become even more favorable for borrowers with undergraduate debt.

The calculator above is designed to help borrowers project payments on the final version of SAVE. If you enrolled before July 1, 2024, your payment should drop in July if you have any undergraduate debt. If you have only undergraduate debt, the July 1 changes should cut your payment in half.

Want to Sign Up? Signing up for SAVE is easy, but there are some mistakes borrowers will want to avoid.

Important Eligibility Notice

All federal student loans would be eligible for this repayment plan except for two notable exceptions.

FFEL Loans and Perkins Loans – FFEL and Perkins loans are not eligible for SAVE but could be made eligible through federal direct consolidation.

Parent PLUS Loans – Parent PLUS loans are not eligible for any IDR plan other than the income-contingent repayment plan (ICR). The proposed changes would not alter this rule. Unlike FFEL loans, a simple consolidation does not fix the Parent PLUS eligibility issue. However, the double-consolidation loophole may work for the borrowers who complete the process in time.

Note for Married Couples

Calculating monthly payments without counting spousal income is now possible with the SAVE plan. This is a significant change from REPAYE, where married couples could not file separately to exclude spousal income from monthly payment calculations.

If you file separately, enter only your adjusted gross income in the line asking about income. If you are filing jointly, please enter your combined income.

Calculator Shortcomings

This calculator is not a perfect tool. There are some potential issues that borrowers using it should understand.

• The SAVE Plan could change. It’s possible that Congress passes legislation or someone files a lawsuit that causes the new plan to get blocked. Such an event is unlikely, but it remains a possibility.
• Mistakes happen. If a number gets transposed or there is confusion about eligibility, payments might not happen exactly as you hoped.
• Calculations for married couples get complicated. If you and your spouse both have federal student loans, filing separately may become extra beneficial under the new plan. That calculation is a bit more complicated and will be available in a future update.
• No Cap on SAVE Payments. If you have a small loan balance and a large income, it’s possible that you might be better off enrolling in a balance-based plan such as the 10-year plan or the graduated repayment plan. In this scenario picking a different IDR play might also make sense.

Plan Highlights and Other Benefits

The big headline is the lower payments that you have probably seen after using the calculator.

These lower payments happen for two main reasons. First, discretionary income gets redefined for the SAVE plan. Previous calculations used a discretionary income of 150% of the federal poverty level. This new plan would use 225% of the federal poverty level.

Additionally, undergraduate borrowers only pay 5% of their discretionary income toward their loans. In the past, it was a minimum of 10%. Borrowers with only graduate debt will still pay 10%. This isn’t really fair to teachers and social workers, but it is still an improvement. Those with a mix will pay a weighted percentage between 5% and 10%. For this reason, the calculator asks about undergraduate and graduate debt.

Beyond the lower payments, there are some other significant changes:

• Borrowers with balances of $12,000 or less are eligible for forgiveness after just ten years instead of the standard 20. This benefit is available starting July 1, 2024.
• The already excellent REPAYE interest subsidy will cover 100% of a borrower’s unpaid monthly interest. This benefit is available from day one of the restart. Use this calculator to estimate the value of the monthly SAVE subsidy.
• Borrowers can file separately to reduce the marriage penalty.

Repayment Plan Alerts

Because we are dealing with some legal challenges to the new repayment plan, I’ve set up a mailing list to notify readers of any big changes.

At most, you will receive one email per month. The idea is to highlight the critical changes and essential deadlines that borrowers need to know.

The post SAVE Calculator: Estimate Payments on Biden’s New IDR Plan appeared first on The Student Loan Sherpa.

Borrowers now have until June 30, 2024, to consolidate their federal student loans and take advantage of the generous rules for awarding pre-consolidation progress toward forgiveness. This extension is particularly crucial for Federal Family Education Loan Program (FFELP) borrowers.

Despite the deadline being extended multiple times, today’s announcement likely marks the final extension. The urgency stems from the impending implementation of the full version of the SAVE rules, set to take effect on July 1, 2024. Under these new rules, borrowers who consolidate will receive the weighted average amount of their existing loans’ progress prior to consolidation.

Key Rule Comparisons

Previous Rules:

• Before the Biden administration’s changes, consolidating federal student loans would reset a borrower’s progress toward forgiveness under both the Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) forgiveness programs.

Current Temporary Rules:

• The temporary rules count certain deferments, forbearances, and activity on balance-based plans that typically do not count toward forgiveness. This includes loans that were previously consolidated under the old rules.
• Borrowers receive maximum progress based on the included loans. For example, if a borrower has one loan with 10 years of progress and another with 6 years of progress, the consolidated loan will reflect the full 10 years of progress.

New SAVE Rules (Effective July 1, 2024):

• Borrowers will receive a weighted average of their progress. For instance, if a borrower has a $3,000 loan with 10 years of progress and a $1,000 loan with 6 years of progress, consolidating the two will result in a loan with 9 years of progress.
• Conversely, if a borrower has a $3,000 loan with 6 years of progress and a $1,000 loan with 10 years of progress, the consolidated loan will have 7 years of progress.

Why Consolidation Before June 30th is Crucial for FFELP Borrowers

For FFELP borrowers, consolidating before the June 30th deadline is almost essential. The temporary rules provide a unique opportunity to maximize progress toward forgiveness, which will no longer be available after the deadline.

A failure to consolidate means that prior payment activity on plans such as the standard repayment plan or the graduated-extended repayment plan will not count toward IDR or PSLF forgiveness.

Even for borrowers without FFELP loans, consolidation is often still advisable, especially for those with loans showing varying amounts of progress toward forgiveness.

Even though borrowers with federal direct loans will recieve the adjustment automatically, there are still potential benefits to consolidating before the adjustment happens.

For example, borrowers who have returned to school after working for a few years and those with loans reflecting different stages of progress should strongly consider consolidation. The temporary rules maximize existing progress. By not consolidating, these borrowers will have loans with different forgiveness timelines.

Final Thoughts

With the final extension in place, impacted borrowers should act swiftly to consolidate their loans before the June 30th deadline.

The benefits of the current temporary rules provide an unprecedented opportunity to maximize progress toward loan forgiveness. As the new SAVE rules take effect on July 1, 2024, this likely represents the final opportunity to take advantage of these generous rules.

If you have questions about how this deadline impacts you, consider calling your loan servicer, reading about the full terms of the adjustment at studentaid.gov or scheduling an consultation to discuss how to maximize the benefit of the adjustment as part of your broader repayment strategy.

The post Biden Administration Extends Student Loan Consolidation Deadline appeared first on The Student Loan Sherpa.

Unfortunately, SAVE isn’t always the best choice.

SAVE doesn’t have a cap on monthly payments, and IBR and PAYE offer monthly payment caps.

What happens to borrowers earning so much money in the future that SAVE becomes more expensive than IBR and PAYE?

The PAYE and IBR Payment Caps and the Danger with SAVE

The “danger” with SAVE is that monthly payments are always based on what a borrower earns. In other words, the more money you make, the more money you pay on SAVE.

PAYE and IBR offer a payment cap. If you earn so much money that your monthly payment is greater than what your payment would be on the 10-year standard repayment plan, your monthly bill is based on the 10-year plan. This offers protection for those in lucrative fields who fear that a SAVE payment could become unreasonably large.

The big fear for many borrowers is that they make many years of SAVE payments but then have to leave income-driven repayment because the bill becomes too large

Eligibility Issues

A secondary problem with SAVE is that enrollment after July 1, 2024, will limit IDR options in the future.

Borrowers on SAVE after this date lose access to PAYE immediately. They also lose access to IBR after five years of SAVE payments.

This means you can’t sign up for SAVE while it is cheaper and then jump into IBR or PAYE when they become the more affordable option. Instead, borrowers must commit long before they know what their earnings will be in the future.

The Partial Financial Hardship Part of the Equation

Anyone can sign up for SAVE, but to enroll in PAYE or IBR, you have to have a partial financial hardship.

What is a partial financial, and how does it impact the payment caps on these plans?

To show a partial financial hardship to qualify for IBR or PAYE, a borrower’s income cannot be so large such that their monthly IDR payment is larger than what the payment would be on the 10-year standard repayment plan. In other words, if PAYE and IBR don’t save money, you can’t enroll.

However, once you are enrolled in IBR and PAYE, you won’t get kicked out for earning too much money. Instead, your monthly payment hits the 10-year standard repayment cap and stays at that number until your income drops, you repay the loan in full, or you earn forgiveness.

If you are early in your repayment journey and you don’t have a partial financial hardship, barring a major financial setback, forgiveness is an unlikely outcome.

Don’t Lose Sight of the Real Goal

Before going further in our analysis, it is probably a good idea to remind ourselves of the real goal we are chasing: spending as little as possible on debt elimination.

When we become too focused on student loan forgiveness and IDR options, sometimes it is easy to lose sight of this goal.

You don’t get any special prize because you qualify for IDR forgiveness instead of paying off your entire balance. What you do receive is a large tax bill on the forgiveness if it happens in 2026 or later, though there is some hope this gets repealed.

In some cases, repaying the debt as quickly as possible and minimizing interest spending is the best way to eliminate debt. Playing games with IDR plans and prolonging the time could just mean that you spend more in interest over the life of the loan.

At the point your SAVE payment is greater than the standard 10-year payment, there is a real chance that payment in full as quickly as possible is the best approach. The sooner this happens in your repayment journey, the less likely you are to benefit from any sort of IDR forgiveness.

In other words, the lack of a SAVE cap only matters in a narrow set of circumstances. If you never reach the point where your SAVE payment is greater than the 10-year standard payment, the absence of a cap doesn’t matter. If you blow past the cap early in your repayment journey, it won’t matter either. The PAYE and IBR cap only offers value if you reach that point late in your forgiveness journey.

Changes on the Horizon

The big wildcard is that we don’t have any idea what federal student loan repayment will look like in the future.

Consider how much has changed in the last five years. We had a global pandemic, payments paused for years, a new repayment plan created, and numerous temporary programs to help borrowers qualify for forgiveness.

This site has been around for just over a decade. In that time we’ve seen the following repayment plans become available: PAYE, REPAYE, IBR for New Borrowers, and SAVE. Each successive new IDR plan offered some improvements over previous options.

If that history tells us anything, it is that we are likely to see more student loan changes in the future.

The impact on our present analysis boils down to one simple thought: paying extra today because it might save you money in the future may not make sense.

PAYE and IBR forgiveness timeline vs. SAVE

Our discussion of payment caps should also cover one other critical point: forgiveness timelines.

Borrowers on PAYE and IBR for New Borrowers can qualify for IDR forgiveness after 20 years. Borrowers on SAVE have to make 25 years of payments if they have any graduate debt (those with only undergraduate loans will only have to make payments for 20 years).

Thus, the two biggest arguments for PAYE and IBR are caps on payments and earlier forgiveness.

This site has already done a deep analysis of the risks and benefits of early PAYE or IBR forgiveness compared to SAVE.

Like the payment cap analysis, there isn’t an easy or obvious answer, just a number of considerations and angles to approach things.

The “Worst-Case” Scenario when Signing Up for SAVE

Some borrowers fear that they will reach a point with SAVE where their income becomes so high that the lack of a payment cap becomes relevant.

To be fair, that is a realistic concern, especially in some higher-earning fields. That said, it is kind of like worrying about all the taxes if you win the lottery. File it away as a good problem to have.

In this circumstance, a borrower could switch back to the 10-year repayment plan. The downside is that the payment would not count toward IDR forgiveness – notably, it would still count toward PSLF.

With the ability to hide income away in retirement accounts, and the ability to exclude spousal income by filing separately, many borrowers can find a way to keep SAVE payments below the standard 10-year plan. Those that cannot either have a very large income or a smaller loan balance. In either of these scenarios, repayment in full will merit serious consideration.

The Risk to Choosing PAYE or IBR for Payment Cap Protection

The alternative approach yields a much different worst-case scenario.

If you stick with PAYE or IBR and willingly pay extra in the hopes that one day your earnings justify the decision, things could go quite poorly.

For starters, this route is especially risky if you qualify for any subsidy on the SAVE plan. In this circumstance, not only are you paying more each month, but your balance may also be growing. The impact here is that if you reach a point where payment in full makes the most sense, you’ve left yourself with a bigger balance to eliminate.

The biggest danger is that your income never justifies opting for payment cap protection. In that scenario, you make years of unnecessarily larger payments, forgo interest assistance, and never utilize the cap that requires so much sacrifice.

Choosing Between PAYE and IBR or SAVE

There isn’t a guaranteed better option. However, factors can tip the scales one way or another.

If you only have undergraduate debt, SAVE forgiveness happens as early as PAYE and IBR, so that might tip the scales toward SAVE.

As your future high-earning years become less speculative, opting for payment cap protections makes more sense. For example, someone who just finished law school shouldn’t assume they will be making a partner salary in 15 years. There are too many variables in the way. However, a physician who just finished their residency might be comfortable projecting a larger income.

If your peak income is really high and your income could also be really low, SAVE makes more sense. For example, suppose you are a struggling musician or actor. If things go poorly, the SAVE subsidy and lower payments are extremely valuable. If things go really well, your income is so large that payment in full is likely the best strategy.

Opting for IBR or PAYE makes more sense if you are further down the repayment journey and have a high-income floor. The cap isn’t valuable if you use it for 10 years because you will have paid off your loan in full before getting any forgiveness. However, the cap is useful if it saves you some money for three years and you are getting forgiveness earlier.

How to Run the Numbers

Two important items are necessary to do these projections. First, you need to know your loan balance. Second, you need a crystal ball so that you can figure out how much money you will earn over the next 20-25 years.

Without a working crystal ball, you will need to run the numbers a few different ways.

First, consider what your payments will look like if things go well for you in the coming years. Assume you get that promotion and that your housing costs stay stable. Assume nobody gets sick and there are no unexpected expenses.

Then look at the downside. You don’t have to think about what it will look like if you get fired and your house burns down. Just think about what might happen if you don’t get the promotion or if you leave for a less lucrative position.

Think about different career scenarios that might realistically play out for you in the coming years.

For each scenario, consider what it means for your student loan payments. Is the SAVE subsidy and lower payments the better option? Does potentially earlier forgiveness and payment caps make PAYE or IBR for New Borrowers the better route? Is it best to just knock out the debt in full to save money on interest?

Going through each scenario and running the numbers may not give you one answer that is clearly the best route. However, you may see a pattern emerge. You may decide that one option usually is the best, and in the rare circumstance that it isn’t, you can live with that outcome.

If you have questions about your options or you want to know how this choice can impact your retirement planning or your ability to buy a house, let’s schedule a consultation to see how all of these plans and programs apply to your specific situation.

The post SAVE vs PAYE and IBR: Payment Caps, Partial Financial Hardships and More appeared first on The Student Loan Sherpa.

While $12,000 of forgiveness after 10 years sounds like an easy concept, there has been a lot of confusion. For example, many readers have written asking if the forgiveness is per loan or based on the total balance. I’ve even received some reports from readers who were given inaccurate information from their loan servicer.

This post should cover all of the fine print. Where the Department of Education hasn’t been clear, I’ve linked to the appropriate section of the Code of Federal Regulations. If you’ve got questions about early forgiveness under SAVE and this article doesn’t cover it, please leave a comment at the bottom of this article.

Determining Your Repayment Term

The path to forgiveness under the SAVE Plan is tied to your “repayment term.” This term is essentially the amount of time you need to be in repayment before qualifying for forgiveness. It varies based on the original principal balance of your loans.

Notably, the current loan balance does not influence the length of the repayment term. If your balance has grown due to interest, you won’t be penalized with a longer repayment length.

Three Rules for Repayment Term Calculations

• For Small Loan Amounts: The shortest term is 10 years for those who borrowed $12,000 or less.
• Incremental Increase: For every additional $1,000 borrowed above $12,000, the repayment term extends by a year. For example, a balance of $14,900 would have a repayment term of 13 years.
• Caps on Repayment Terms: The maximum term is capped at 20 years for purely undergraduate loans and 25 years for a mix of graduate and undergraduate loans, regardless of the borrowed amount.

Is the forgiveness timeline based on individual loan balances or the total amount borrowed?

To answer this question, let’s look at a simple example. Suppose a borrower has a total of six loans. Each loan was for $5,000. Thus, the borrower has a total original balance of $30,000.

Does forgiveness come after 10 years because each loan is less than $12,000, or does it take the full 20 to 25 years because the total balance is $30,000?

Sadly, the answer is that forgiveness will take 20 to 25 years.

The Department of Education hasn’t been very clear about this particular question. The StudentAid.gov article explaining early forgiveness leaves the answer to this question somewhat ambiguous.

For a more definitive answer, we must turn to the Code of Federal Regulations. For those unfamiliar, the Code of Federal Regulations is the source for the rules that the Department of Education and the loan servicers must follow.

34 C.F.R. § 685.209(k)(3) states that early forgiveness is based on “the borrower’s total original principal balance on all loans.”

The language is quite clear. If your total original balance exceeds $12,000, you won’t get early SAVE forgiveness after 10 years.

Loan Types and Eligibility

Even the phrase total original balance can get a little tricky in terms of determining the forgiveness timeline. For example, consolidated loans make things a bit more complicated.

Borrowers with unconsolidated loans are the easy ones. The Department of Education will look at the total original balance of each of your loans when determining the forgiveness timeline.

For those who have consolidated their loans, the Department of Education will look at the original balance of the loans that were included in the consolidated loan.

There are also a couple of other special circumstances:

• FFEL Program Loans: These are included in the timeline math because they can be consolidated into a federal direct loan to get eligibility for SAVE.
• Parent PLUS Loans: These do not impact the forgiveness timeline. However, if the Parent PLUS loan is consolidated into a federal direct loan, it will impact the timeline, according to the Department of Education.

Parent PLUS Loans and Early SAVE Forgiveness Example

As many Parent PLUS borrowers know, Parent PLUS loans are not eligible for the SAVE repayment plan. Thus, they do not qualify for early SAVE forgiveness.

This nugget of information is good news for borrowers who have a mix of both. Suppose you borrowed a total of $10,000 for your education and then borrowed Parent PLUS loans to help pay for your child’s education. In that scenario, you would be eligible for early forgiveness on the original $10,000.

However, if you consolidated the Parent PLUS loans into a federal direct loan, the debt would be included in the timeline analysis, derailing early forgiveness.

Steps to Access Early Forgiveness

1. Consolidation of Loans: If some of your loans are ineligible for the SAVE Plan, consolidating them into a Direct Consolidation Loan is necessary to qualify for early forgiveness. A common example would be an FFEL loan. Most borrowers won’t need to take this step.
2. Addressing Defaulted Loans: If your loans are in default, the Department of Education encourages you to utilize the Fresh Start program to make defaulted loans eligible.
3. Enrollment in SAVE Plan: Eligibility for early forgiveness requires enrollment in the SAVE Plan.

For most borrowers, getting early forgiveness only requires signing up for SAVE.

The Process of Loan Forgiveness

Once you are enrolled, eligible, and reach the timeline requirement, your loans will be placed in forbearance while your servicer processes the forgiveness. This period may extend beyond two to three months, but no payments are required during this time.

Final Thoughts on Early Forgiveness

Before this year, income-driven student loan forgiveness only made sense for borrowers with larger student loan balances.

Thanks to the new forgiveness timeline on SAVE, borrowers with smaller balances now have a more realistic path to debt freedom.

The post Early Forgiveness Under SAVE: Understanding Loan Size Limits and Other Fine Print appeared first on The Student Loan Sherpa.

Supreme Court battles and political rhetoric might get all the headlines, but the little-known Payment Count Adjustment is the program changing millions of lives for the better.

This one-time program was created to help borrowers who were confused about repayment rules or got bad advice from servicers.

In most cases, borrowers don’t have to take any action to benefit. However, consolidation is a critical step for some borrowers, and it has a firm deadline.

One-Time Payment Account Adjustment Basics

This site has already covered this program in great detail, but the highlights are worth repeating.

Previous periods in which borrowers were on ineligible repayment plans will now automatically count toward Public Service Loan Forgiveness and Income-Driven Repayment Forgiveness.

Additionally, many deferments and forbearances will also count.

The program may not have a sexy name or get much media attention, but it is a great tool to help borrowers get the credit they deserve for payments made toward their student loans.

The December 31, 2023, Deadline

For most borrowers, this account adjustment will happen automatically.

In most cases, it is scheduled to occur in 2024. That said, thanks to the adjustment, some borrowers have already reached PSLF or IDR forgiveness.

The problem category is borrowers with privately-held FFEL loans. These commercially-held loans are still technically federal loans, but they don’t always qualify for all federal programs. For example, borrowers with these loans had to make payments during the Covid-19 payment and interest pause.

Borrowers with these troublesome FFEL loans need to consolidate their loans into a federal direct loan to benefit from this program.

By consolidating FFEL borrowers will get full credit for their payment history from before the loan consolidation. Additionally, it will enable them to sign up for the new SAVE plan, which promises lower monthly payments.

Sherpa Note: FFEL borrowers who miss the deadline for the adjustment will still be able to sign up for SAVE if they later consolidate. However, these borrowers won’t get the benefit of the one-time adjustment. Thus, consolidating before the deadline is much better than waiting.

Moving the Deadline is Critical

Because some borrowers are required to take action to benefit, the success of the program depends upon borrower knowledge.

At this time, many borrowers are still learning about the one-time adjustment. Others haven’t heard about it yet. I know this for sure based on email exchanges with readers of this site.

The point of the adjustment is to help borrowers who didn’t get any guidance from their servicer or who got bad advice from their servicer. At present, servicers are failing the otherwise eligible FFEL borrowers by not informing them of the significance of the opportunity.

Dating back to the beginning of the repayment restart, wait times have routinely taken hours. The borrowers who did get to talk with a representative often got guidance that conflicted with what other representatives said. The Department of Education acknowledged the severity of the servicing mess when they withheld millions of dollars’ worth of payments to servicers for their failure.

By the time many borrowers finally get the help they need from their servicer, the December 31, 2023, deadline will have passed.

Avoiding Confusion

The current deadline also creates a potentially confusing scenario for borrowers.

Those who consolidate by December 31 receive a generous calculation method for determining progress toward PSLF or IDR forgiveness. Those who consolidate after July 1, 2024, will get created for the weighted average of their pre-consolidation progress. This calculation is less generous, but it won’t reset borrower progress toward forgiveness.

At this point, it isn’t clear how the Department of Education will handle credit for pre-consolidation payments for borrowers who consolidate in the first half of 2024. It would be absurd to punish borrowers who consolidate during this gray area, but for now, we don’t know what the Department of Education will do.

Moving the one-time adjustment and the generous calculation deadline to June 30, 2024, solves this issue. It also gives servicers time to get things squared away on their end and provides the Department of Education more time to reach out to potentially impacted borrowers.

Lender Incentives

Many borrowers leave comments and send emails alleging that they think their lender is somehow out to get them or intentionally making things difficult. I usually point out to these borrowers that incompetence is the most likely explanation. Servicers are overwhelmed and often confused, and this leads to mistakes.

In the case of the one-time adjustment, things are a bit more complicated.

To qualify, commercially-held FFEL borrowers must consolidate into a federal direct loan. For the borrower, their debt amount doesn’t really change. It just improves eligibility for forgiveness programs and repayment plans.

For the commercial lender, things change dramatically. Instead of receiving a monthly payment from the borrower, they receive a lump sum from the Department of Education, paying off the loan in full. In other words, they stop profiting from the debt.

I haven’t seen any evidence indicating that commercial lenders intentionally withhold this information from borrowers. However, I am saying there could be a significant incentive to keep borrowers ignorant about the one-time adjustment. The cure for this problem is for the Department of Education to make every effort to educate borrowers.

Hiding a deadline on New Year’s Eve will only raise more questions.

Previous Deadline Moves

Finally, it is worth noting that this deadline has already been moved multiple times.

When the one-time adjustment was first announced on April 19, 2022, the deadline to consolidate was by the end of 2022.

As the Covid-19 payment and interest pause kept getting extended, it also made sense to move the one-time adjustment consolidation deadline.

Servicers will be making the adjustment at some point in 2024 according to the Department of Education. Why impose an arbitrary early deadline on borrowers?

July 1, 2024, is the day the SAVE plan becomes fully implemented, and numerous other federal policies take effect. Moving the deadline to benefit from the one-time adjustment to June 30, 2023, addresses multiple issues and fits nicely with other federal changes.

The post The Department of Education Needs to Extend the One-Time Payment Count Adjustment Deadline appeared first on The Student Loan Sherpa.

Rather than list the many borrowers who can benefit from the SAVE IDR plan, it is probably easier to list the few borrowers on IDR plans who wouldn’t benefit from signing up for SAVE.

That list includes the following:

• Certain high-earning borrowers with graduate debt who finished school in the last decade.

End of list. If you have been out of school for a while or if you don’t have graduate debt, SAVE is almost certainly the best IDR plan available.

REPAYE (Revised Pay As You Earn) vs. SAVE (Saving on a Valuable Education)

The REPAYE plan is getting eliminated and replaced with SAVE.

Think of SAVE as a new and improved REPAYE. Borrowers will see some changes happen right away, and other changes will happen in July 2024.

The transition from REPAYE to SAVE is a two-phase process.

Phase I started with the repayment restart. Borrowers still pay 10% of their discretionary income each month, but the discretionary income formula changes. Instead of using 150% of the federal poverty level in the calculation, the number jumps to 225%. For borrowers, this means a smaller monthly bill.

The next immediate change is that married borrowers who file their taxes separately can exclude spousal income from REPAYE calculations. This improvement makes REPAYE a better option for married borrowers.

Finally, SAVE now covers 100% of the excess interest the loan generates each month. The current REPAYE subsidy only covers 50%. For example, a $10,000 loan at 6% interest generates $600 per year in interest or $50 per month. In this example, if your REPAYE payment is $20, it means $30 per month in excess interest. In the past, REPAYE immediately forgives 50% of that interest, meaning our borrower has $15 immediately forgiven. Now, REPAYE/SAVE will cover all $30 of the monthly unpaid interest.

Phase II happens on July 1, 2024. REPAYE formally becomes the SAVE plan, and the remaining provisions of SAVE take effect. These provisions include earlier forgiveness for borrowers with smaller balances and lower payments for borrowers with undergraduate debt.

Digging Deeper into the SAVE Plan: For a deep dive into SAVE rules and a calculator to estimate SAVE payments, check out the SAVE calculator.

REPAYE/SAVE Enrollment and Eligibility

The vast majority of IDR borrowers will want to sign up for the SAVE plan.

Those already in REPAYE should have had their payments automatically recalculated under the new terms. Borrowers can enroll in SAVE or update their IDR enrollment on the Department of Education IDR enrollment page.

All Federal Direct Loans are eligible, including Federal Stafford (Subsidized and Unsubsidized), Graduate Plus, and Direct Consolidation. The one exception is that Direct Consolidation loans that include Parent PLUS loans are not eligible.

Borrowers with FFEL Loans and Perkins loans are not eligible. However, these borrowers can consolidate the debt into a federal direct loan to gain eligibility. Additionally, federal direct consolidation at this time should not reset progress toward student loan forgiveness.

Defaulted federal loans are also not eligible. However, the Fresh Start program will allow borrowers to resolve the default and enroll in REPAYE/SAVE.

PAYE (Pay As You Earn) Gets Sunsetted

PAYE was a noteworthy repayment plan because it offered the lowest monthly bill when it was first created.

With the creation of the SAVE plan, most borrowers won’t benefit from PAYE. SAVE will always offer lower monthly payments than PAYE. Additionally, more borrowers will qualify for $0 per month payments under SAVE.

The Department of Education policy is that no new borrowers can sign up for PAYE. However, those currently on PAYE can stick with this plan.

One reason that a borrower might stick with PAYE is if they have graduate loans and they are nearing the 20-year IDR forgiveness. On SAVE, a borrower with graduate debt must make payments for 25 years before earning IDR forgiveness. Borrowers chasing this form of forgiveness must balance the higher payments on PAYE against the earlier forgiveness for those with graduate debt.

Another potential reason to stick with PAYE would be the payment caps on PAYE. For most borrowers this doesn’t make a difference, but if you have some high earning years on the tail end of your repayment journey, the cap could be a benefit.

IBR (Income-Based Repayment) Becomes a Rarely-Used Option

Borrowers on IBR pay 10% or 15% of their monthly discretionary income. The percentage depends on when they took out their first student loan. Those who borrowed after 2014 only pay 10%. Those with older loans pay 15%.

The IDR analysis will look almost identical to the PAYE analysis. REPAYE/SAVE is the cheaper and more affordable repayment plan for most borrowers.

The one exception is borrowers with graduate debt who are pursuing IDR forgiveness after 20 years. SAVE will make these borrowers wait 25 years.

The big difference between PAYE and IBR moving forward is that IBR will still be available for most borrowers, whereas PAYE disappears immediately for those not currently enrolled.

However, borrowers lose IBR eligibility after making 60 payments on SAVE after July 1, 2024. The purpose of this rule is to prevent graduate borrowers from making low payments on SAVE for 19 years and 11 months and then switching to IBR and trying to get forgiveness after 20 years.

The big decision for borrowers with graduate loans considering IDR forgiveness will be deciding between the lower payments of SAVE vs. the earlier forgiveness of IDR.

What about PSLF Borrowers? Borrowers pursuing Public Service Loan Forgiveness won’t have to worry about this issue. PSLF eligibility comes after 120 eligible payments (10 years worth). These borrowers can make payments on any eligible repayment plan, including SAVE.

ICR (Income-Contingent Repayment) Doesn’t Change Much

ICR was the first income-driven repayment plan, but it is also the worst one.

Moving forward, new students will not be able to enroll in ICR. However, borrowers with consolidated Parent PLUS loans can still sign up for ICR.

In the past, and under the new rules, consolidating Parent PLUS loans will be the only way to qualify Parent PLUS debt for PSLF or income-driven repayment.

Sadly, Parent PLUS loans cannot be eligible for REPAYE or SAVE. Thus, it remains critical not to consolidate Parent PLUS loans borrowed for your child with federal student loans borrowed for your education.

What if I Make Too Much for SAVE?

There isn’t an income cap for SAVE enrollment.

Borrowers with substantial incomes may have large payments, but there isn’t a salary cutoff for SAVE enrollment or calculations.

However, some borrowers may have incomes so large that other balance-based plans, such as the 10-year standard repayment plan, become more affordable.

Picking the Best Plan

Despite the changes, things are pretty simple for most borrowers now that payments have restarted.

Most people will want to sign up for the SAVE plan. It will has the lowest monthly payments, an interest subsidy, and full benefits arrive automatically next year.

FFEL and Perkins borrowers should probably consolidate before the IDR Count Update deadline and sign up for SAVE.

Parent PLUS borrowers won’t be able to benefit from the new repayment plan. Their strategy hasn’t really changed.

Borrowers with graduate debt are the only ones who face a decision. They will need to compare the monthly savings of REPAYE/SAVE against 20-year IDR forgiveness. Notably, not all borrowers with graduate loans face this issue. If your loans are too old to qualify for PAYE or IBR for New Borrowers, REPAYE/SAVE will be the best option.

Frequently Asked Questions

Many of you have sent me emails with questions about how SAVE will impact your repayment strategy.

Here are some of the most common questions I’ve received:

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers updated on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to ensure you don’t overlook any critical developments.

The post How SAVE Changed Income-Driven Repayment: Goodbye to REPAYE, PAYE, IBR, and ICR appeared first on The Student Loan Sherpa.