Unfortunately, the Department of Education says the SAVE pause during the litigation will not count toward IDR or PSLF forgiveness. This puts borrowers in a difficult situation, as explained below.

This page will be updated as the SAVE cases progress through the court system and more information becomes available.

Key Events in the SAVE Litigation Timeline

Two cases have been filed seeking to block the SAVE repayment plan. One case was filed in Missouri and the other in Kansas.

• 6/24/24: District court judges in Missouri and Kansas each issue preliminary injunctions regarding the SAVE plan. One court prevents forgiveness under SAVE while the other court blocks the 5% calculation for borrowers with undergraduate debt.
• 6/30/24: The 10th Circuit Court of Appeals issues an order allowing the Department of Education to move forward with the 5% calculation for undergraduate debt. This overruled the Kansas judge who initially granted the preliminary injunction.
• 8/9/24: The Eighth Circuit blocks all forgiveness, interest subsidies, and the discretionary income calculation under SAVE.
• 8/13/24: The government files an emergency request to the Supreme Court asking for the SAVE plan to be reinstated.
• 8/28/24: The Supreme Court declines to intervene with the preliminary injunction. It will stay in effect until the case is resolved.

Sherpa Tip: This timeline only includes the SAVE litigation cases. Forgiveness 2.0 and any related litigation will be on a saparate page.

Current Status: A Long Wait Before We Get a Resolution

Now that the Supreme Court has declined to rule on the Eighth Circuit’s preliminary injunciton ruling it means that SAVE will be temporarily blocked until the case is finally resolved.

This means that borrowers are likely in for a wait of several months or even potentially years before there is a final ruling in the case.

For now, borrowers enrolled in SAVE will not be charged interest and they won’t have to make any payments.

Possible Outcomes and Their Odds (Odds Updated 8/28)

The section that follows is an educated guess. Litigation is unpredictable, and when you factor in the political components of these cases, it makes guessing a final result even harder.

That said, lots of you have emailed me asking about my opinions on various aspects as well as what the worst outcomes look like. I’m doing my best to give you my thoughts on this situation and to give you a range of what might happen.

I will update the odds as new information becomes available.

The Best Case Scenario: The Courts determine that the SAVE plan is within the authority of the Department of Education and the SAVE takes effect as planned. Congress granted the President the authority to create an income-driven plan and chose not to define exactly how it would work. Now that the Chevron case has been overturned, it appears as though the courts will take a bigger role in determining the specifics of the authority granted by Congress. As a result, the best case scenario, while very possible, isn’t the most likely outcome. Odds: 20%

The Most Likely Scenario: Parts of SAVE are eliminated and parts of SAVE survive. The parts of SAVE that are in the most jeopardy are the 5% calculation for undergraduate borrowers and the early forgiveness provision for borrowers with smaller balances. These parts are in the greatest jeopardy because experienced district court judges, appointed by Obama, felt that issuing a preliminary injunction to block these features was necessary. Generally speaking, judges only grant a preliminary injunction if they feel the party requesting the injunction is reasonably likely to succeed. Odds: 50%

The Bad Outcome: The entire SAVE regulations are blocked. In the event that the courts decide the President and Department of Education acted beyond their Congressional approval, they could block the SAVE plan completely. This would erase the favorable discretionary income calculation and the generous SAVE subsidy among other features. Borrowers currently on SAVE would likely revert back to REPAYE. Odds: 30%

The Worst Case Scenario: The court determines that only the plans explicitly created by Congress are valid. This would mean that both SAVE and REPAYE are eliminated. Many borrowers would be stuck with the IBR repayment plan in that situation. Fortunately, this outcome is highly unlikely. The courts are much more likely to prevent a new plan from being created than they are to wind back a plan that is already in use. Additionally, millions of borrowers have signed contracts with the government where REPAYE and all the other non-SAVE repayment plans are a term of the contract. Odds: <1%

Evaluating Your Next Move: Key Factors for Borrowers

While the interest-free forbearance is a positive, the uncertainty around its duration and the implications for IDR or PSLF forgiveness complicates matters. In most cases, borrowers should avoid making unnecessary extra payments.

Here are some key factors to consider when evaluating your next move:

Time Until IDR Forgiveness: If you are nearing IDR forgiveness, moving out of SAVE might be a smart move. Under the current rules, loans forgiven under IDR will be taxed starting in 2026. If you think you might be right on that border, swift action could be necessary. The tricky part about making this move is that processing times are currently very slow for IDR applications.

PSLF Job Stability: For borrowers working toward PSLF, moving out of SAVE probably doesn’t have the same urgency. The buyback program protects borrowers in this situation. There are some hoops to jump through, and borrowers will want to set aside some money to prepare for the cost of the buyback, but changing repayment plans is probably more o of a hinderance than a help at this time.

Repayment Strategy: Borrowers who are unlikely to reach forgiveness under PSLF or IDR should stay on SAVE. The pause gives them the opportunity to put some extra money aside and knock out their debt more efficiently.

Repayment Plan Switching Headaches: If you’ve tried to do anything with your loans over the past year, you know federal servicers are overwhelmed. Processing times are often delayed, and switching out of SAVE and then switching back in at the conclusion of the litigation could be challenging.

What Happens if I Change Plans? Even though electronic applications are not available on studentaid.gov, borrowers can still submit a paper application.

When the application is initially submitted, borrowers will be placed on a processing forbearance and that time will count toward IDR and PSLF forgiveness, but interest will also accrue.

Once 60 days have elapsed on the processing forbearance, borrowers will be placed in a general forbearance where interest will no longer accure, but the time will not count toward PSLF or IDR forgiveness.

Interest Capitalization: In the past, changing repayment plans led to interest capitalization. New rules now only capitalize interest when statutorily required. Notably, if a borrower switches from IBR to SAVE (or any other repayment plan) interest capitalizes. This shouldn’t be much of an issue because borrowers on SAVE won’t have any interest to capitalize due to the subsidy. However, if you qualify for low monthly payments on IBR and the interest charges are greater than your monthly bill, you may have a larger balance if you return to SAVE at the end of the litigation pause.

Final Tip: Stay Informed

Stay informed as this is a fast-moving situation. Follow updates closely, and be prepared to adjust your repayment strategy as needed.

At this time, there are not upcoming deadlines or urgent actions that may need to be taken. However, that all could change quickly. Monitoring these cases is important. It’s early August, and there could be many changes coming before the month is over.

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 SAVE Lawsuits: Current Status, Next Steps, and Tips for Borrowers Navigating the Chaos 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.

To address the fallout from the litigation, the Department of Education placed all borrowers enrolled in SAVE into a forbearance and suspended interest charges. While this move was a commendable first step to mitigate the damage caused by the lawsuit, it is not enough.

Limitations of the Current Forbearance

One of the critical issues with the lawsuit forbearance is that the payment pause time will not count towards Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) forgiveness. For borrowers on a tight PSLF timeline or those hoping to achieve IDR forgiveness before the tax on forgiveness returns in 2026, the forbearance poses a significant problem. Although there are several options available for borrowers to work around this issue, each comes with considerable drawbacks.

To better support borrowers impacted by the SAVE litigation, the Department of Education should reinstate the Revised Pay As You Earn (REPAYE) plan.

Why Isn’t REPAYE Available?

As part of the SAVE regulations, the SAVE plan replaced REPAYE. Consequently, the Department of Education and loan servicer systems no longer have REPAYE in their systems.

At the time SAVE was introduced, it seemed like a logical step, as SAVE was objectively better than REPAYE in many respects.

How the Return of REPAYE Could Help

Reinstating REPAYE could provide several benefits for borrowers:

• Progress Toward Forgiveness: Borrowers could start making progress toward forgiveness if they choose not to accept the forbearance. This could be especially helpful for those who are close to achieving forgiveness.
• Avoiding Interest Capitalization: Currently, many borrowers may have to consider switching to the Income-Based Repayment (IBR) plan. However, switching to and from the IBR plan causes statutorily mandated interest capitalization, which would be a significant setback for those impacted.

Potential Long-Term Benefits of REPAYE

Reintroducing REPAYE may not be just a temporary solution.

If the SAVE plan ultimately loses in court, the elimination of REPAYE under SAVE regulations will be reversed, making REPAYE the long-term plan that many borrowers need.

Legal Argument/Requirement for Bringing Back REPAYE

The Eighth Circuit’s injunction on all of the SAVE rules includes the regulations that eliminated the REPAYE plan. Technically, the SAVE regulations altered the rules of REPAYE and renamed it SAVE. The injunction nullifies those changes and the name change. Therefore, by not making REPAYE available, the Department of Education may arguably be violating this ruling.

Suing the government is notoriously complicated, but a failure to make REPAYE available to borrowers opens the door to potential borrower lawsuits.

Final Thought

While the forbearance and interest suspension provide relief for many borrowers, those who miss out on PSLF or have their IDR forgiveness taxed are significantly worse off. To fully address the issues caused by the SAVE litigation, the Department of Education should promptly reinstate the REPAYE plan.

The post The Department of Education Needs to Bring Back REPAYE ASAP appeared first on The Student Loan Sherpa.

Borrowers often believe they must choose between paying off loans and saving for retirement. After all, every dollar you put towards retirement is a dollar you can’t use to pay down student loans.

What if it was possible to build a retirement and make student loan debt disappear at the same time?

It might sound surprising, but there are at least four different strategies that can be used to work towards both milestones.

Use Student Loan Forgiveness to Build a Bigger Retirement

The federal student loan forgiveness programs can be excellent opportunities to eliminate student loan debt. For borrowers with large student loans and a smaller income, these programs can be life-changing.

Borrowers on income-driven repayment plans can have their remaining balances forgiven after 20 to 25 years worth of payments. Those employed by the government or an eligible non-profit can have their loans forgiven after just ten years of payments.

Unfortunately, there is some risk in chasing after student loan forgiveness. While borrowers should understand the rules of loan forgiveness, there are no guarantees. Even though the concern over the high rejection rates in the media may be exaggerated, there is no denying that forgiveness comes with a bit of uncertainty.

Borrowers worried about qualifying don’t have to skip the program entirely. Instead, they can chase after student loan forgiveness but protect themselves if it doesn’t happen.

One option is to open a savings account as a Plan B fund. Borrowers make the minimum student loan payments as they pursue forgiveness and any additional funds that they have available go into the Plan B account. Going this route allows borrowers to attack their debt aggressively, but also try to maximize forgiveness opportunities.

If it becomes clear that forgiveness won’t happen, the Plan B fund can be used to put a huge dent in the debt balance. If forgiveness does work out, the Plan B fund can be used as a huge head start toward retirement.

Refinance and Build a 401(k) or IRA

Those who aren’t eligible for forgiveness can still lower payments and save for retirement.

Companies like SoFi, Splash, and CollegeAve all refinance student loans for borrowers with a decent credit score and income. These companies pay off the older high-interest loans in full, and a new loan with a lower interest rate is created.

Further Reading: Learn how student loan refinance companies make money.

By refinancing, borrowers can free up some additional cash each month. This additional money can be put towards retirement in a 401(k) or an IRA.

For example, suppose a borrower pays $500 per month on their student loans. They may be able to refinance and get the monthly payment lowered to $350. This means an extra $150 monthly. Instead of keeping this money, they can invest it in an IRA.

Depending upon the terms of the student loans, a borrower can refinance student loans to get them paid off more quickly AND use the additional funds available each month to save for retirement. The key to the process is finding the lowest refinance rates available.

Get Your Employer Involved

One of the best ways to build a retirement is to take advantage of employer matching programs. If your employer offers a dollar-for-dollar match, it means each retirement contribution essentially doubles from day one.

Unfortunately, some student loan borrowers do not take advantage of this program because they feel they need every dollar from their paycheck to pay down student loans and pay for the essentials. (Editor’s Note: Passing on an employer matching program is usually a bad idea as it is essentially passing on free money.)

New legislation now allows employers to tie 401(k) matching contributions to employee student loan payments. In other words, payments toward student debt can become retirement contributions depending on your employer.

Because this is relatively new territory, many employers don’t know about this option, and many others will be hesitant to do so. However, some employers may embrace the opportunity. The matching cost to the employer is the same whether the match is based upon a student loan payment or a retirement contribution.

Discuss with your boss or HR how employers can now match contributions based on student loan payments. Many companies are looking for ways to attract young, talented people, and this could be very appealing.

Turn Retirement Tax Breaks into Lower Student Loan Payments

This is my favorite student loan hack.

Borrowers on IDR plans like IBR, PAYE, and SAVE can lower their AGI —and their payments — by contributing to a retirement account.

As most borrowers know, when IDR payments are calculated, the government usually uses your most recent tax return. The important number pulled from the tax return is the AGI or Adjusted Gross Income. A higher AGI means higher student loan payments, and a lower AGI likewise means lower monthly payments.

Contributions to a 401(k) or a traditional IRA lower the AGI. Accountants call tax breaks that lower the AGI above-the-line deductions. For each dollar that is put in a 401(k) or IRA, the AGI is reduced by one dollar.

If a student loan borrower puts $300 per month in an IRA, their AGI will be $3,600 lower the following tax year. The lower AGI means a lower tax bill AND lower student loan payments. Borrowers can use the federal government’s student loan repayment estimator to see how changes to their AGI would change their monthly student loan bill.

Putting money in a 401(k) or IRA provides student loan borrowers with three primary advantages:

1. A lower tax bill in April,
2. A lower monthly payment on an IDR plan, and
3. A larger balance in their retirement accounts.

It is worth noting that a lower monthly IDR payment can mean spending more in interest over the life of the loan, so borrowers should factor total loan cost into their planning. However, for borrowers who will eventually qualify for federal student loan forgiveness, this option can result in a larger portion of the loan balance being forgiven.

Final Thought: Plan Ahead and Know the Rules

These advanced strategies can be confusing, but they are worth understanding for better financial planning.

All student loan borrowers should familiarize themselves with the terms of their student loans and understand how the debt impacts their finances.

By understanding and planning, borrowers can use these strategies to quickly and efficiently eliminate their debt. They will also be empowered to meet other important financial goals, such as retirement.

The post 4 Ways to Save for Retirement AND Eliminate Student Loan Debt appeared first on The Student Loan Sherpa.

Though the calculations might first appear complicated, the SAVE interest assistance can save borrowers thousands of dollars per year.

Want to calculate your subsidy? Check out our SAVE subsidy calculator to estimate the value of the monthly SAVE subsidy for your loans.

Sherpa Note: The REPAYE plan is being phased out and replaced by the new SAVE plan.

REPAYE was the first repayment plan to offer borrowers an ongoing interest subsidy, but the SAVE subsidy is a huge improvement.

What is the Saving on A Valuable Education (SAVE) Interest Subsidy?

Only certain borrowers qualify for the SAVE interest assistance. To qualify, a borrower’s monthly payment on SAVE must be less than the monthly interest generated by the student loan. In other words, if your loan is growing faster than you can make payments, the government will help pay your interest.

No special enrollment is required. Borrowers just need to sign up for the SAVE plan.

Those receiving the interest subsidy will see a monthly transaction each month labeled “interest subsidy.” As interest assistance, it does not change the principal balance. However, it does reduce the outstanding interest on the loan.

The size of the subsidy depends entirely upon the borrower’s balance and income.

SAVE Interest Subsidy Calculations

The best way to make sense of the SAVE interest subsidy is to look at a simple example.

Suppose a borrower has a federal student loan balance that generates $500 per month in interest. That same borrower has a monthly payment on SAVE of $100.

In this situation, the borrower’s balance is actually going up by $400 per month.

The SAVE subsidy covers 100% of the excess interest. In this case, the loan generates $500 per month of interest, but $400 of it is in excess of the borrower’s monthly payment.

Thus, the borrower in this example would receive a $400 per month interest subsidy on SAVE. This is significant because it means the borrower’s balance doesn’t grow even though the monthly payments are less than the monthly interest charges.

Calculate your subsidy: The SAVE Subsidy Calculator allows borrowers to see their monthly payment on SAVE and how much interest the subsidy will cover.

Extra Payment on the SAVE Subsidy

Initially, it looked like borrowers could receive the SAVE subisdy and have all of their extra payments counted toward principal instead of interest.

After some confusion, it now looks like extra payments will count toward interest first, making it a misake for subsidy recipients to make extra payments. Instead, these borrowers should consider a different strategy, such as putting money aside in a high-yield savings account.

SAVE Subsidy Tax Concerns

Many servicers are describing the SAVE subsidy as a form of forgiveness. Given the potential tax issues with student loan forgiveness, some borrowers are concerned that the subsidy might mean a bigger tax bill in the future.

The good news is that borrowers shouldn’t worry about a tax bill as a result of the SAVE subsidy.

Even though the Department of Education hasn’t explicitly said there won’t be a tax bill, borrowers are on safe ground assuming there won’t be tax consquences:

• The REPAYE subsidy hasn’t caused tax problems. Before the SAVE subsidy covered 100% of interest, the REPAYE subsidy covered 50%. REPAYE borrowers didn’t have to pay a tax on forgiven debt.
• Reduced interest charges are not the same as forgiven debt. Think of the SAVE subsidy like a zero percent APR credit card. Credit card companies routinely offer a temporary 0% interest rate to encourage people to use their cards. There isn’t a tax for the people who get this perk.

It’s possible that some state government might target student loan borrowers who receive the SAVE subsidy, but thus far, it hasn’t happened. Even if there was a tax on the interest relief, it wouldn’t change the math for most borrowers. Paying a dollar today to save 25 cents in the future rarely makes sense.

Why Does SAVE Assist Borrowers with Interest?

The point of the interest subsidy is to prevent balances from spiraling out of control.

Those getting the maximum subsidy, i.e., the borrowers making $0 monthly payments, will essentially have a 0% interest rate.

The interest assistance helps borrowers stay on track during a period of unemployment or underemployment. Before SAVE, a prolonged job search could make successful repayment seemingly impossible. Under SAVE, borrowers get a little more breathing room.

Interest Subsidies for IBR, PAYE, and ICR Borrowers

Sadly, the repayment plans of IBR, PAYE, and ICR do not qualify for an interest subsidy.

REPAYE/SAVE is the only plan that offers this protection to borrowers who cannot afford to keep up with their federal student loan interest.

When Isn’t REPAYE/SAVE the Best Option? The best choice for most borrowers with larger balances and lower incomes is usually SAVE. However, there is at least one circumstance where other IDR plans might be better:

Graduate Borrowers Planning on IDR Forgiveness – On PAYE and IBR for New Borrowers, student loan forgiveness comes after 20 years. Under REPAYE/SAVE, borrowers have to wait 25 years if they have graduate school debt. Borrowers in this situation will need to compare the benefit of an interest subsidy against the value of forgiveness five years earlier.

Signing Up for SAVE

Enrollment in SAVE works just like all of the other IDR repayment plans. No extra steps are necessary for the interest subsidy.

Signing up is simple, though there are a couple of items that borrowers will want to watch closely when they enroll.

Borrowers unsure of whether or not to sign up for SAVE should use the SAVE calculator to get an idea of their monthly bills going forward.

The post How Does the SAVE Interest Subsidy Work? 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.

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.

Selecting the best repayment plan requires more than just finding the one with the lowest monthly payment. Each one has unique features that can be positive or negative. The trick is to understand the differences between them.

Today, we will take a deep dive into federal student loan repayment plans. We will cover the repayment schedule, rules, and regulations for each repayment plan. Then, we will explore who could benefit from that particular payment plan.

Repayment Basics

We will first review a few basic concepts helpful in understanding federal student loan repayment.

Federal Student Loan Servicers

The company paid by the government to collect your federal loans is your student loan servicer. The servicer is supposed to guide borrowers through repayment options, including plan selection. However, they don’t always offer the best advice.

Loan servicers can be a valuable source of information, and working with them is essential for making payments. However, it can be a big mistake to rely entirely upon federal student loan servicers. There have been multiple lawsuits brought against loan servicers for failing borrowers.

If you are unsure which lender services your federal student loans, the Department of Education tracks up-to-date records on the servicer(s) assigned to your loans.

Repayment is the Goal

Much of this article will cover the minimum payment requirements on various plans. Selecting the repayment plan with the lowest minimum monthly payment can have significant advantages. But, it’s important to remember that most borrowers will have to pay back their loans in full with interest.

Making the smallest payment possible can result in maximum interest spending. For this reason, borrowers shouldn’t just seek out the “best” federal repayment plan. Instead, they should come up with a strategy for debt elimination. The goal should be to eliminate student loans while spending as little as possible. Merely delaying payments will only increase the cost of the debt.

The Loan Simulator

One of the most valuable resources for federal borrowers is the Loan Simulator. This tool lets you use your actual loan information to estimate your payments on various repayment plans. It isn’t a perfect resource. It has to make certain assumptions about you, your loans, and your repayment. However, it does a decent job of helping people consider how the different repayment plans would work in their circumstances.

Federal Student Loan Consolidation

You may have one or more federal loans that are ineligible for a desired repayment plan or program. You can usually remedy this issue by consolidating your federal loans. Federal student loan consolidation is when the federal government combines all of a borrower’s existing federal loans into one or two individual loans. Determining whether or not you should consolidate can be a tricky question. But it’s an essential question to answer, especially if you’re considering pursuing Public Service Loan Forgiveness.

Finding the Best Federal Repayment Plan

If there isn’t a single repayment option that stands out as the best, how do you pick the right one?

The best way to think about federal repayment plans is to consider them as tools in a toolbox. For example, a borrower might opt for a very low minimum payment plan to focus her efforts on paying down high-interest credit card debt. Once she pays off the high-interest debt, she can switch tools and turn to a more aggressive repayment strategy. For this reason, there isn’t a “best” repayment plan. Instead, borrowers should focus on finding the plan that best fits the needs of their circumstances.

The key is to understand how you can use these tools. Once you understand the various options, you can pick the right tool for the job.

The Standard Repayment Plan

The Standard Repayment Plan is often called the 10-year repayment plan. This plan is the default plan on which the government initially places most borrowers. Accordingly, the first student loan bill to show up in your mailbox is probably based on this plan. It is also the repayment plan that usually has the highest minimum payment.

The math on the standard repayment plan is simple. Payments are calculated so that the loan is paid off in full after ten years, or 120 payments. The monthly payments stay level for the duration of the loan. Note: For borrowers who consolidate their loans, the standard repayment plan can have a 10 to 30 years repayment length.

The Graduated Repayment Plan

The government set up the Graduated Repayment Plan to help borrowers ease into their student loan repayment. Borrowers enrolled in the graduated repayment plan will see their monthly payments increase every two years. The repayment length on the graduated repayment plan is ten years. However, if the borrower has previously consolidated their federal student loans, repayment can last for 10 to 30 years.

While making smaller payments that gradually increase may sound appealing, this plan isn’t the best choice for most borrowers. One of the significant flaws with the graduated repayment plan is that it doesn’t qualify for some of the best federal student loan forgiveness programs. Borrowers looking for lower payments are typically better off opting for an income-driven repayment plan due to their increased flexibility.

The Extended Repayment Plan

The Extended Repayment Plan gives borrowers 25 years to repay their student loans. There are two options with this plan. The first offers fixed payments for the entire 25 years. The second, sometimes called the Extended Graduated Repayment Plan, offers graduated payments. Borrowers who opt for lower payments now and higher payments in the future will end up spending more on interest.

Like the Graduated Repayment Plan, the Extended Repayment Plan doesn’t qualify for some student loan forgiveness programs. Accordingly, this plan is less than ideal for most borrowers. Even for borrowers who don’t expect to pursue loan forgiveness, opting for an income-driven plan is often preferable. This is because it keeps that possibility open in the future.

If the Extended and Graduated Repayment Plans seem like undesirable options, there is a reason. The government created these plans long before it created the newer, more borrower-friendly plans. In some ways, these plans are ineffectual relics. However, it’s certainly conceivable that circumstances could exist in which a borrower might want to choose one of these plans.

Public Service Loan Forgiveness Note: While the Graduated and Extended Repayment plans are not eligible for PSLF, borrowers who are otherwise eligible may have a limited opportunity for forgiveness.

Income-Driven Repayment Plans

The remaining federal repayment plans fall into the category of Income-Driven Repayment (IDR) plans. In many cases, IDR plans are part of an optimal repayment strategy.

What makes these plans special is that monthly payments are based upon how much a borrower makes rather than what they owe. In theory, this means that all federal borrowers should be able to afford their monthly payments.

To enroll in an IDR plan, borrowers must first submit income verification. This usually means a recent tax return or latest paystub. From this information, the loan servicer will calculate a borrower’s discretionary income. We have previously looked at discretionary income calculations in detail. The short version is that once a borrower earns enough income to be above 150% of the federal poverty level, they must pay a portion of that surplus income toward their student loans. The percent of discretionary income required depends upon the specific IDR plan selected.

A big perk of IDR plans is that they are eligible for student loan forgiveness after 20 to 25 years, depending on the plan. Borrowers on SAVE with a small balance can also qualify in as little as 10 years. For borrowers with no hope of ever repaying their federal loans, this route to forgiveness offers a light at the end of the tunnel. The bad news is that the IRS may consider forgiven debt to be income for tax purposes.

Fortunately, there are a couple of notable exceptions to the tax rule. For starters, Public Service Loan Forgiveness is not taxed. Second, there is a temporary exception that lasts until 2026. However, borrowers who earn forgiveness after the temporary rule expires may still get a tax bill.

The table below shows the basics of each Income-Driven Repayment Plan.

Plan	Discretionary Income Required	Years Until Forgiveness
ICR - Income-Contingent Repayment	20%	25
IBR - Income-Based Repayment	15%	25
PAYE - Pay As You Earn	10%	20
IBR for New Borrowers*	10%	20
SAVE - Saving on A Valuable Education	5 - 10%	20 or 25**

* New Borrowers are defined as those who started borrowing after July 1, 2014.
** Borrowers with graduate school debt qualify after 25 years, while those with undergrad debt qualify after 20 years.

While our table does cover the basics of the various IDR plans, there is fine print associated with each program that borrowers should understand. In some cases, this fine print prevents certain borrowers from applying to their desired repayment plan. In other cases, some repayment plans have unique perks that make them an ideal option.

Further Reading: Tips for Deciding Between IBR, PAYE, and SAVE.

Pay As You Earn (PAYE)

The Pay As You Earn (PAYE) plan is one of the most popular federal student loan repayment plans. The government expects borrowers to pay only 10% of their discretionary income. Furthermore, the government grants forgiveness after 20 years. The 10% and 20-year numbers are both the lowest available of all the IDR plans. The PAYE plan is also an eligible repayment plan for Public Service Loan Forgiveness.

The downside to PAYE is that it is available only to borrowers who are new as of Oct. 1, 2007, who received a disbursement of a Direct Loan on or after Oct. 1, 2011.

For a while, PAYE was the best repayment plan available. The arrival of SAVE changed this analysis.

Saving on A Valuable Education (SAVE) – Formerly REPAYE

The new SAVE plan is arguably the best federal student loan repayment option. It was created to replace and improve upon the REPAYE plan.

It changes the discretionary income calculation so that borrowers get to keep more of their income.

Additionally, borrowers with undergraduate debt are only required to pay 5% of their discretionary income on SAVE. Graduate debt still gets charged at 10%.

SAVE also has an excellent subsidy for borrowers who have unpaid interest each month.

Looking Into SAVE: SAVE introduces a few new rules, and some of them will not be available until July 1, 2024.

If you are considering any IDR plan, be sure to investigate the full details on the SAVE plan.

SAVE Calculator: Curious about SAVE payments?

Check out the new SAVE calculator to estimate monthly payments on SAVE.

Income-Based Repayment Plan (IBR)

The Income-Based Repayment (IBR) plan is one of the most popular repayment plans. For a long period, the IBR plan was by far the best option for many borrowers. As time has passed, however, the government has created new programs such as PAYE and SAVE. This means that, while IBR might still be the preferred choice for some, it is no longer the slam dunk it used to be.

Before we get into the IBR specifics, it is essential to note that there are two forms of IBR: IBR for New Borrowers and the standard IBR plan. These two repayment plans work in the same manner, but there are three key differences. IBR for New Borrowers:

1. only charges 10% of discretionary income (standard IBR is 15%),
2. offers forgiveness after 20 years (standard IBR is 25), and
3. is only available to borrowers who started borrowing after July 1, 2014.

The IBR for New Borrowers plan is an excellent option, but many borrowers are not eligible for this repayment plan.

Today, the borrowers who might still want to opt for IBR would be those who desperately want to file their taxes separately from their spouses. IBR plans don’t include spousal income in the monthly payment calculations. Thus, IBR borrowers should be willing to pay 15% of their discretionary income and probably a higher tax bill.

Income-Contingent Repayment Plan (ICR)

The Income-Contingent Repayment (ICR) plan is much less desirable than the newer IDR plans. This is because ICR charges 20% of discretionary income and requires a full 25 years before student loan forgiveness is an option. ICR is an eligible repayment plan for Public Service Loan Forgiveness purposes.

However, ICR is still a good option for some borrowers because it is some borrowers’ only option. The most common example would be parents who borrowed PLUS loans. If these parents consolidate their PLUS loans into a federal direct consolidation loan, they can become eligible for ICR and Public Service Loan Forgiveness. For many Parent PLUS loan borrowers, this is the best option.

FFEL Loans, PLUS Loans, and Perkins Loans

The Federal Family Education Loan (FFEL) program and the Perkins loan program were two very popular forms of student loans for several years. In 2010, Congress terminated the FFEL program and chose not to renew the Perkins Loan program in 2017. These two programs were unique in their funding structure. As a result, the government treats repayment of these loans somewhat differently than the standard federal direct loans. Although the PLUS loan program continues to this day, it also receives specialized treatment in repayment.

Borrowers with FFEL, PLUS, and Perkins loans should know that these loans may not be eligible for all repayment plans. They should also know that federal direct consolidation can often serve as a backdoor to make the debt eligible for the desired repayment plan. However, some of these loans can be toxic and destroy program eligibility. For example, including a PLUS loan made to a graduate student into a federal direct consolidation can make that loan eligible for SAVE. However, including a PLUS loan made to a parent into a federal direct consolidation makes the entire consolidated loan ineligible for SAVE.

We won’t be getting into the specific eligibility issue for these loan types, but borrowers with these loans should be aware of the potential problems. Handling these loans will require a bit more research and extra conversation with your student loan servicer.

Does My Spouse’s Income Count in Repayment Plan Calculations?

Being married can make federal student loan repayment a bit more complicated.

As a general rule, the Department of Education looks at a couple’s ability to pay the debt and calculates discretionary income for the couple rather than the individual. For married couples who both have federal student loans, this means that the math will get a little more tricky, but household spending on federal student loans will remain constant. When calculating payments, the Department of Education first ascertains the exact number it expects a couple to pay each month. The Department then determines the monthly amount owed based upon relative loan size.

For couples who both have federal student loans, the math might look like this:

Mr. and Mrs. Example both sign up for IBR. Based upon their latest tax return, the Department of Education determines that 15% of their combined income results in a $300 per month IBR payment. Mr. Example owes $40,000 on his student loans, while Mrs. Example owes $20,000. Because Mr. Example’s debt is double his wife’s, he will owe double the payment. Mr. Example will be charged $200 per month while Mrs. Example gets charged $100 per month. If Mr. and Mrs. Example had equal debt, they would each be expected to pay $150 per month. Filing taxes separately may not result in much savings; it just means the individual payments may be slightly different depending upon loan balances.

For couples with one spouse who has federal loans and one who does not, things get more tricky. This is because most IDR plans will calculate payments based upon their combined income rather than just the borrower’s income. The good news is that the couple can file their taxes separately to secure a lower payment on some repayment plans. The bad news is that by filing separately, the tax bill in April can be more expensive. For some couples, it makes more sense to file jointly and live with the higher monthly payment because the debt will have to be paid in full. For others, filing separately to get lower payments might make sense if the student loan borrower is chasing after student loan forgiveness.

How do I change Repayment Plans?

The easiest way to sign up for an IDR plan is to complete the application online.

Borrowers can use the Department of Education website to submit an Income-Driven Plan Request. The form takes just a few minutes to fill out, and most borrowers can have the IRS send their most recent tax return information directly to the Department of Education, making the process fast and straightforward. Other borrowers may have to manually submit recent pay stubs if they are not using a tax return.

IDR requests can take well over a month to be processed, so borrowers should not expect instant results on their application.

Is Deferment or a Forbearance an Option?

Borrowers who are struggling to repay their federal loans can opt to sign up for a deferment or forbearance. This usually isn’t the best strategy, however. When a borrower isn’t making payments towards their loans, the balance grows, and a difficult situation becomes even harder to manage.

In short, forbearance or deferment is a short-term solution to a long-term problem. These options may be helpful in some limited circumstances. But, most borrowers are better off by putting a plan in place to eliminate their debt rather than just delaying payments.

Opting for an income-driven repayment plan can mean $0 per month payments. What’s more, it starts the borrower on a path to forgiveness and debt freedom.

Refinancing with a Private Lender

Another option for federal student loan repayment is to refinance with a private lender.

This option carries major risks because the refinance process pays off old federal loans in full and creates new private loans. These new private loans don’t have the same great forgiveness programs or the flexibility afforded by income-driven repayment plans. Making things even riskier is the fact that there is no way to “undo” a student loan refinance. Once the federal loan is paid off, it can never come back.

The benefit is that borrowers can get dramatically reduced interest rates. Several lenders offer refinancing services, and they target borrowers with good jobs and a strong credit rating.

Weighing the risk vs. the reward on the refinancing decision can be tricky. We usually suggest borrowers hold off on refinancing until they are confident that they won’t ever need income-driven repayment or student loan forgiveness. At that point, it is time to check the current refinance rates to see if there are any potential savings available.

Which Federal Repayment Plan is the Best Option?

There are a variety of federal repayment plans, and there are specific circumstances where each repayment plan excels.

Many borrowers may find that one plan is best initially but change plans as their repayment situation evolves.

The most important thing for borrowers is to understand the options available so that they don’t miss out on any savings opportunities.

Still not sure which option is best? This IDR comparison article looks at specific circumstances where one plan is noticeably better than others.

The post Federal Student Loan Repayment Plan Options and Strategy appeared first on The Student Loan Sherpa.

The good news is that it won’t.

If you are enrolled in an IDR plan, you can switch to SAVE and resume where you left off.

Concerns about Restarting the Forgiveness Clock by Changing Repayment Plans

Many borrowers have been bitten by following someone else’s guidance only to learn that it was wrong. It happens with friends, and it happens with servicers. The experience is frustrating and a tough pill to swallow.

For some people, the introduction of this article is sufficient. Others will justifiably want more assurance.

I can’t just write a rule into existence. I’m not your attorney, and the things written on this site won’t influence what the Department of Education does when it processes your request for forgiveness.

One extremely polite reader said she appreciated my help but noted that even though she read that she wouldn’t restart progress on this site, she couldn’t find confirmation on studentaid.gov. She wanted something to put her mind at ease.

I try to always link to the appropriate rules and resources, but in this instance, there isn’t an easy way to show my work. Studentaid.gov doesn’t have an explicit statement that changing repayment plans won’t restart IDR forgiveness.

For the borrowers worried that changing repayment plans will restart forgiveness, I’ll show my work. Hopefully, it will provide peace of mind to some of you.

The Code of Federal Regulations on Switching Repayment Plans

Servicers and studentaid.gov don’t get the final says on student loan rules.

When these sources offer conflicting or confusing information, I turn to the Code of Federal Regulations for clarity.

Given that the CFR is a legal document, the language often seems convoluted or confusing. The rule on switching repayment plans is no different.

However, if you wish to venture into that area, check out Code of Federal Regulations § 685.209(c)(5)(v).

It specifies that the starting point for the 20 or 25 years required for forgiveness goes back to the earliest starting point on the IBR, ICR, or PAYE plans.

Eagle-eyed readers may note that the regulation discusses REPAYE and not SAVE. However, SAVE won’t be fully implemented until July 1, 2024. Until then, the official rules will list the technical name of the plan, which is still REPAYE.

IDR Forgiveness vs. Specific Plan Forgiveness

A less technical way of looking at this question is also available.

If we look at various policies on studentaid.gov, they usually discuss IDR forgiveness generally. For example, in early 2024, the Department of Education will update IDR payment counts.

In other words, the IDR count is the number that matters.

PAYE, IBR, and REPAYE/SAVE may have different rules regarding IDR counts required before forgiveness, but they still operate from the same IDR count rules.

If you had separate PAYE counts and IBR counts, changing plans might risk wasting that progress. However, the Department of Education uses IDR counts to track this progress.

Restarting Payment Counts When Switching Doesn’t Make Sense

Sometimes, when trying to make sense of one rule, it helps to look at another rule.

One of the new rules on SAVE is that borrowers cannot sign up for IBR after they have been on SAVE for 60 months or more, starting July 1, 2024.

Why have this rule?

The Department of Education’s commentary on the new rules for REPAYE/SAVE noted that such a limitation was necessary to prevent borrowers from signing up for lower payments on REPAYE/SAVE and then getting forgiveness immediately by switching back to IBR.

If switching repayment plans restarted progress toward forgiveness, this rule wouldn’t be necessary.

Final Thought: Continue to Seek Verification

I know many of you have struggled to track down answers to your student loan questions. Sometimes two different people from the same servicer will give two different answers. It’s frustrating.

If you see something on this site that you don’t understand or can’t verify on your own, feel free to ask.

It helps me make the site a better resource, and hopefully, I can share some information that gives you some peace of mind.

The post Switching to SAVE or REPAYE and Restarting Forgiveness Progress appeared first on The Student Loan Sherpa.

SAVE offers most borrowers lower monthly payments and a faster path to student loan forgiveness. However, it isn’t the best option for everyone.

This article will cover the SAVE enrollment process and help borrowers determine whether or not SAVE is the best option for their individual student loan situation.

Signing Up for SAVE: Enroll in About Ten Minutes

The SAVE plan isn’t technically available until July 1, 2024. However, borrowers can take all the steps necessary to enroll today, start receiving benefits as soon as the payment and interest pause ends, and enjoy full SAVE benefits as soon as it is fully available.

It might seem complicated, but the situation is relatively straightforward.

The REPAYE plan will become the SAVE plan on July 1, 2024. Any borrower enrolled in REPAYE at that time will automatically convert from REPAYE to SAVE.

Additionally, REPAYE as we know it, is changing when the payment and interest pause ends on September 1, 2023. This temporary version of REPAYE will lower payments for borrowers, offer a better interest subsidy, and help out married couples.

To enroll, borrowers just need to sign up for the REPAYE plan. The easiest way to apply is to use the Department of Education’s IDR Enrollment Request. They estimate that the online form takes about ten minutes to complete. The IDR enrollment page can help borrowers already on an IDR plan and borrowers who need to sign up for an IDR plan for the first time.

Estimate Your Payments: Because the SAVE plan uses a new formula and REPAYE will use a temporary formula, estimating monthly payments going forward can be tricky.

This SAVE calculator will help borrowers estimate their REPAYE payments for this fall and SAVE payments starting next summer.

FFEL and Perkins Borrowers: Extra Steps to Apply for SAVE

Borrowers with Perkins loans and FFEL loans will have to do some extra work to sign up for SAVE.

Even though FFEL and Perkins loans are not technically eligible for SAVE enrollment, they can become eligible through federal direct consolidation.

At this particular point in time, consolidation may appear a bit complicated. For example, many student loan resources and guides state that consolidation will restart the forgiveness clock, making it a risky choice. While this was previously true, the IDR Payment Count Update will allow borrowers to consolidate without losing progress toward debt forgiveness.

The critical detail for FFEL and Perkins borrowers is that they need to consolidate their debt before December 31, 2023. Missing this deadline could mean missing out on the full benefits of the IDR Count Update.

As part of the consolidation process, borrowers can select which repayment plan they want for their consolidated loan. Those who wish to sign up for SAVE should enroll in REPAYE. When REPAYE sunsets in July 2024, these borrowers will automatically get put on the SAVE plan.

Switching from IBR, PAYE, and REPAYE: How SAVE Impacts the Forgiveness Clock

I’ve gotten dozens of emails from readers worried that switching to SAVE will delay their progress toward PSLF or IDR Forgiveness.

In the vast majority of cases, there is no impact. For example, PSLF borrowers simply need to make 120 certified payments. PSLF eligibility does not depend on which repayment plan is selected — so long as the borrowers are on an eligible repayment plan.

Likewise, a borrower currently enrolled in the REPAYE plan won’t lose their progress toward IDR forgiveness when REPAYE converts to SAVE.

However, there is one potential downside for borrowers pursuing IDR Forgiveness…

The Risk for Graduate Borrowers on PAYE and IBR for New Borrowers

If you attended graduate school and you are eligible for either the PAYE plan or the IBR for New Borrowers plan, you may have a bit of math to do.

Borrowers with graduate debt on the SAVE plan earn IDR forgiveness after 25 years of payments.

Borrowers with graduate debt on the PAYE or IBR for New Borrowers plans can get forgiveness after 20 years.

These borrowers are allowed to stay on their current repayment plans. However, they are limited in their ability to switch back to these plans once they sign up for SAVE.

Switching to SAVE means lower monthly payments. Sticking with PAYE or IBR for New Borrowers can mean forgiveness arrives five years earlier.

This wrinkle for those with graduate school debt is one of the most significant risks/dangers of signing up for SAVE.

SAVE for Parent PLUS Borrowers

Unfortunately, Parent PLUS loans are not eligible for SAVE.

Worse yet, the consolidation path available for FFEL and Perkins borrowers is not available for Parent PLUS borrowers.

If you have Parent PLUS loans, the only IDR plan available is ICR (Income-Contingent Repayment).

Learning More About SAVE

Before enrolling in SAVE, it is a good idea to learn about the many new provisions in the new repayment plan and the implementation timeline.

In most cases, SAVE will be the best option and help borrowers find considerable savings each month. For these borrowers, the biggest mistake would be waiting to sign up for SAVE and potentially missing out on $0 per month payments or an interest subsidy.

Stay Up to Date: Student loan rules constantly change, 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 to Sign Up for SAVE: Mistakes to Avoid When Switching Repayment Plans appeared first on The Student Loan Sherpa.