- The Biden-Harris Administration recently introduced the Save on a Valuable Education (SAVE) Plan to replace the Revised Pay As You Earn (REPAYE) Plan and significantly alleviate the burdens of student debt
- The plan seeks to reduce loan payments for undergraduate borrowers by 50%, limit growth of loan balances, and provide income protection for those earning less than $32,805/year or $67,500/year for a family of four)
- Current REPAYE plan holders will transition automatically to SAVE; others should consider if switching is beneficial
- Interest on student loans resumes September 1, 2023 and payments restart in October 2023
- Married couples filing taxes separately should take note of provisions specific to SAVE as these may affect monthly payments
Dear Facet members,
Big changes are on the horizon for student loan repayments.
The Biden-Harris Administration recently introduced the Saving on a Valuable Education (SAVE) Plan—which will replace the current Revised Pay As You Earn (REPAYE) Plan—aiming to significantly alleviate the burdens of student debt.
Here's a breakdown of what's changing and the steps you need to take to manage your student loans.
Why the changes?
The goal behind this reform is clear: make post-high school education an avenue for opportunities without the heavy burden of debt.
The new system aims to reduce the repayment amount, especially for low- and middle-income borrowers, and introduce flexibility in terms of payment options and potential forgiveness.
- Affordability: The plan aims to cut undergraduate loan payments by 50% compared to existing income-driven repayment plans.
- Protection from increasing balances: As long as you keep up with the payments, your balance will not grow.
- Income-driven benefits: If you earn less than $15 an hour, you might not need to make any payments at all. Those earning above this could save over $1,000 annually compared to other IDR plans.
- Automatic transitions: Current users of the REPAYE plan will shift to SAVE automatically.
- More income protection: The amount of income shielded from payments under SAVE will jump from 150% to 225% of the Federal poverty guidelines (FPL). This translates to those earning less than $32,805 a year (or $67,500 for a family of four) not having to make payments.
- Impact of COVID deferrals on PSLF 120 qualifying payments: During the COVID-19 pandemic, many borrowers experienced deferrals or forbearance on their student loans. If you were relying on these months to fulfill the required 120 qualifying payments for PSLF, it's essential to assess the impact of these deferrals on your progress. Reach out to your loan servicer for an updated count of qualifying payments and consider additional strategies to make up for any lost time.
- Key dates: Student loan interest resumes on September 1, 2023, and payments restart in October. The US Department of Education will inform borrowers prior to payment restart.
Actionable Steps for Facet Members:
- Review your current plan: Before making any decisions, understand your current repayment structure. Are you on the REPAYE plan? If so, the transition will be automatic. Otherwise, consider if switching might benefit you.
- Assess your income bracket: The SAVE plan's benefits vary according to income. Understand where you fit in to determine your potential repayment or forgiveness amounts.
- Stay updated: While many changes are immediate, some benefits will not roll out fully until July 1, 2024. Keep an eye on communications from your loan service provider.
- Married couples, take note: If you're married and filing taxes separately, the SAVE plan has provisions that might affect your repayment calculations.
- Think about the future: Considering more schooling? With payment reductions and enhanced loan forgiveness possibilities, this might be an opportune time.
- Stay proactive with Facet: As always, our team is here to guide you. Regular check-ins can help ensure you’re on the right track, not just with student loans but with all your financial endeavors.
Next Steps: Incorporating student loan payments into your financial plan
As the student loan payment restart approaches, it's crucial to revisit your cash flow plan with your planner.
Defining your objectives, such as minimizing payments, optimizing tax implications, exploring forgiveness options, and aligning your monthly cash flow, will ensure that you effectively navigate these changes.
Remember, understanding the intricacies of student loan repayment can be complex, and seeking professional advice is vital. Your Facet CFP® Professional is here to develop a comprehensive strategy tailored to your unique financial circumstances and long-term goals.