Now that we have received some important details on Biden’s proposed new repayment plan, now called SAVE, many borrowers are looking forward to the potential savings they might see.
Even though the federal student loan repayment pause is still ongoing, I’ve already received several emails from borrowers thinking about adjusting their repayment strategy in light of this new plan. Some are even considering holding off on other options while they wait for the new plan to become available.
For most borrowers, this is probably a mistake.
Great Opportunities Potentially on the Horizon
To be clear, the new repayment is a game-changer for many borrowers, especially those who only borrowed for undergraduate studies. They may see their monthly payments cut in half.
Additionally, borrowers with smaller balances may earn forgiveness in ten years instead of the typical 20 to 25-year wait.
In other words, the details of this plan look great, and borrowers have reason to be excited.
Sherpa Thought: The excitement around the new plan is justified, but there are still some major flaws that I’d like to see addressed. For starters, this plan isn’t very fair to teachers and social workers.
One major problem with waiting for Biden’s new plan is that it won’t fully take effect until July 1, 2024.
However, waiting would be foolish. Many of the best features of SAVE will be immediately available to borrowers enrolled in the REPAYE plan.
Once SAVE becomes available, borrowers on REPAYE will automatically be enrolled in SAVE.
In other words, if you want to eventually sign up for SAVE, you should sign up for REPAYE right now. If you are already enrolled in REPAYE, you don’t need to do anything to benefit.
Switching Repayment Plans is Easy
It’s also worth noting that switching repayment plans is incredibly easy.
Changing repayment plans takes less than 10 minutes on studenaid.gov. Borrowers can switch repayment plans at any point — you don’t have to spend an entire year on one IDR plan before you can change plans.
How Should Borrowers Plan for a New Repayment Option?
For the vast majority of borrowers, signing up for REPAYE now is the way to go. SAVE will be the best option in most cases.
If you are curious to see what REPAYE payments will look like at the restart and what the SAVE payments will eventually become, be sure to check out our SAVE calculator.
Borrowers with Parent PLUS loans, recent graduate school debt, and FFEL loans may have to do a little more homework. This breakdown on the future of Income-Driven Repayment should help these borrowers.