New SAVE Student Loan Plan: A Game Changer for Borrowers

Juilia Ruskin
5 Min Read

Student loan forgiveness programs are back, and the latest plan could help many Americans reduce their student loan payments. The new plan, called Saving on a Valuable Education (SAVE), offers more benefits compared to traditional plans like Income-Based Repayment and Pay As You Earn. Here’s a breakdown of how the SAVE plan works and what it means for borrowers.

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The SAVE Student Loan Measures

The U.S. Department of Education reports that at least 7.5 million Americans have seen lower payments under the SAVE plan. Many borrowers now pay zero dollars each month, while others have their payments capped at just 10% of their discretionary income. This has significantly improved their financial situations.

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How the SAVE Plan Works

According to Michael Lux, an attorney and founder of Student Loan Sherpa, nearly every federal student loan borrower is eligible for the SAVE plan. Some borrowers may need to consolidate their loans to qualify, but it’s usually worth the effort.

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The SAVE plan standardizes payments for a year, giving people time to manage their debt. After this period, payments are adjusted based on the borrower’s income. After 20 years of repayments for undergraduate loans or 25 years for graduate loans, borrowers are eligible for full debt forgiveness. In some cases, President Biden has created exceptions for full forgiveness after 10 years.

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Upcoming Changes to the SAVE Plan

The SAVE plan is set to be updated and expanded on July 1st. After this date, borrowers with only undergraduate loans could see their payments drop to 5% of their discretionary income, down from the current 10%. Borrowers with graduate loans will remain at the 10% mark, while those with both types of debt will have an average rate between 5% and 10%.

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Benefits of the SAVE Plan

Michael Lux highlights the advantages of the SAVE plan: “When you combine the lower payments on SAVE with the generous SAVE subsidy and the earlier forgiveness provisions of SAVE, it becomes clear that SAVE is the best repayment plan for most federal borrowers.”

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For example, a borrower making $70,000 a year who currently pays $310 per month could see their payments reduced to $155. This can help those struggling to make ends meet, save money, or plan for retirement.

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Alex Beene, a financial literacy instructor in Tennessee, also supports the new SAVE plan. He believes it makes student debt more manageable for many borrowers, freeing up money that was previously used for loan payments.

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Opposition to the SAVE Plan

Not everyone is happy with the new SAVE plan. Kansas Attorney General Kris Kobach plans to sue the U.S. Department of Education over the new loan forgiveness options. However, the Biden Administration remains committed to improving the student loan system.

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President Biden stated, “From day one of my administration, I vowed to improve the student loan system so that a higher education provides Americans with opportunity and prosperity—not unmanageable burdens of student loan debt. I won’t back down from using every tool at our disposal to get student loan borrowers the relief they need to reach their dreams.”

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What is the SAVE plan?

The SAVE plan is a new student loan repayment program that helps borrowers reduce their payments based on their income.

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Who is eligible for the SAVE plan?

Almost all federal student loan borrowers are eligible, though some may need to consolidate their loans.

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How does the SAVE plan benefit borrowers?

The SAVE plan caps payments at a percentage of discretionary income, potentially lowering monthly payments significantly.

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What changes are coming to the SAVE plan?

Starting July 1st, payments for undergraduate loans may drop to 5% of discretionary income.

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What is the opposition to the SAVE plan?

Some, like Kansas Attorney General Kris Kobach, are against the plan and plan to sue the U.S. Department of Education.

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An up-and-coming tax attorney passionate about educating readers on tax planning and mitigation strategies. Juilia articles offer practical advice and actionable tips to help individuals and businesses navigate the intricacies of tax law with confidence.
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