There’s a new income-driven repayment option, SAVE, available for federal student loans. The SAVE plan increases the amount of protected discretionary income, forgives any interest that accrues each month that is not covered by the calculated monthly payment amount, and, starting in July 2024, will decrease the percentage of the discretionary income in the calculation. Learn more about the SAVE plan in our article.
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Federal student loans have entered repayment as of October 1st, but the good news is there’s a new repayment plan that you can sign up for to make sure your monthly payments are low. Let me explain.
Federal student loans offer income driven repayment plans that base your monthly payment on your discretionary income. There are a few different income driven repayment plans, and the one that’s right for you is going to be based on the specifics of your situation. But this new plan, the SAVE plan, may offer the most generous repayment terms of all for many borrowers.
Because previous income driven repayment plans have set your monthly payment at 10% of your discretionary income. The SAVE plan cuts that in half to 5%. This chart from Federal Student Aid allows you to estimate what your monthly payment may be under the SAVE plan depending on your income level. If your monthly payment under the SAVE plan doesn’t cover your monthly interest, the remaining interest will be forgiven, so that as long as you’re making payments, your balance will never increase.
Oh, and there’s one other thing. Depending on your beginning balance and your degree level, you’re eligible to have your loan balance forgiven after 10, 20, or 25 years of repayment. To learn more about the SAVE plan or other federal repayment options, please visit studentaid.gov and click Loan Repayment.
