If you are enrolled in the Saving on a Valuable Education (SAVE) repayment plan, significant changes are looming regarding your student loan payments. The SAVE plan, celebrated for enabling payments as low as $0, has been officially struck down, leading many borrowers to worry about their payment amounts in the future. The Department of Education offers several other income-driven repayment (IDR) plans that set monthly payments based on a percentage of discretionary income. However, these alternatives are expected to result in higher payments compared to the now obsolete SAVE plan. Experts anticipate that for most borrowers still enrolled in SAVE, payment amounts may rise significantly, with the potential for payment resumption beginning as early as December this year, although many expect it may extend into mid-2026.
When the SAVE plan concludes, borrowers will need to transition to another repayment plan, and there are currently three primary IDR options available: Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR). Each of these plans features different eligibility requirements and repayment calculations, but they generally involve higher monthly payments than those under the SAVE plan. Additionally, borrowers may opt for non-income-based plans such as the standard repayment plan, graduated repayment, or extended repayment. However, it’s crucial to be aware that if you are pursuing Public Service Loan Forgiveness (PSLF), you must select an income-driven repayment plan rather than a standard option.
The increase in student loan payments, once the SAVE plan ends, is variable and will depend on multiple factors including income level, household size, and total debt. For instance, using an example of a single borrower with a student loan balance of $30,000 and an income of $60,000 at a 6.53% interest rate, the loan simulator indicates significant variations in monthly payments across different plans. Under the SAVE plan, monthly payments are around $217. However, switching to ICR, IBR, or PAYE could result in hikes to payments ranging from $290 to $312 per month. Even a shift to the standard repayment plan would lead to a monthly obligation of approximately $341.
The Income-Contingent Repayment plan calculates payments as 20% of discretionary income or what would be paid under a fixed 12-year plan; while IBR and PAYE set payments to 10% of discretionary income with annual adjustments that cap payments according to a standard repayment plan. Even these seemingly manageable monthly amounts can accumulate to a significantly larger total by the end of the loan term. For instance, with ICR, a borrower might find themselves paying a total of $43,919 over the life of the loan, while the standard repayment option could see a total paid amount of approximately $40,932.
Refinancing student loans can be appealing for borrowers seeking lower interest rates and manageable payments. However, experts advise caution regarding refinancing federal loans. Once borrowers refinance their federal student loans with a private lender, they lose access to essential federal benefits, such as loan forgiveness programs and payment pauses during economic hardships. This could present challenges for individuals who were comfortably meeting their payments yet find themselves in a precarious financial situation.
To prepare for the anticipated increases in monthly payments, it is crucial to take proactive steps. Borrowers should utilize the loan simulator provided by the Department of Education to estimate their future payments and speak to trusted financial advisors for informed guidance. It is also advisable to adjust current financial practices, such as reviewing budgets to cut unnecessary expenses. Discussing potential tax strategies with advisors may also help lower adjusted gross income, which is used to calculate certain repayment amounts under IDR plans. Being vigilant and informed will be vital in navigating the shifting landscape of student loan repayment options in the near future.
