If you’re one of the almost 45 million Americans with student loan debt, you’re likely familiar with Income-Driven Repayment (IDR) plans. These plans have provided financial relief for millions of borrowers, offering flexibility and stability to borrowers who would otherwise struggle to manage high monthly student loan payments relative to their income.
Navigating the dynamic student loan landscape can be complicated and overwhelming. In this article, we’ll explore the recent changes to IDR, including the introduction of the Saving on A Valuable Education (SAVE) plan, and how the program has evolved over time, especially in response to the unique challenges posed by the COVID-19 pandemic and other developments.
IDR plans have undergone significant transformations in recent years, with legislative changes expanding their reach and making them even more accessible to borrowers. Here are some key updates to be aware of:
One of the most significant changes has been the extension of payment periods. Borrowers can now enjoy lower monthly payments stretched over 20 to 25 years, depending on the specific plan they choose.
The income thresholds for eligibility and payment calculations have also been adjusted. This ensures that more borrowers, including those with higher incomes, could benefit from IDR plans.
IDR plans have always included a loan forgiveness component, typically after 20 to 25 years of consistent payments. However, recent changes have made forgiveness more generous and easier to attain, including a timeline as short as 10 years for certain low-balance borrowers.
The first income-driven plan was Income-Contingent Repayment, which became available to borrowers in 1995. Over time, new plans have been added through legislation in order to address potential limitations, with the intention of:
These efforts were often aided by current events, such as the 2008 recession (which led to concerns about rising debt and job scarcity) and the COVID-19 pandemic. Most recently, after the Supreme Court decision against President Biden’s widespread debt cancellation plan, the federal government introduced a new plan, along with changes to existing plans, targeting even more eligible borrowers and offering the lowest monthly payments yet.
|Plan||Monthly Payments||Repayment Period||Status|
|Income-Based Repayment (IBR)||
||20-25 years, depending on when you become a new borrower||Remains available but borrowers cannot select plan after 60 payments on REPAYE that occur on/after July 1, 2024|
|Pay as You Earn (PAYE)||
||20 years||Not accepting new enrollments as of July 2023|
|SAVE (formerly REPAYE)||
||This plan replaces REPAYE|
|Income-Contingent Repayment (ICR)||
The lesser of the following:
|25 years||Not accepting enrollments for current students; only available to future borrowers with consolidated Parent PLUS loans|
Formerly known as REPAYE (Revised Pay As You Earn), the new SAVE plan is designed to provide an even better repayment and forgiveness option for many borrowers with federal student loans. There are a few unique factors that elevate SAVE above other options, including a shorter forgiveness timeline, lower monthly payments (which will lower even further when more elements of the plan go into effect in July 2024), and the bonus of interest subsidies for eligible borrowers. This means that if your monthly payment doesn’t cover the accruing interest on your loans, the government will pick up the tab for a portion of that interest. This could be a great benefit for borrowers with high-interest loans. Read more about SAVE in our comprehensive guide.
As several adjustments have been implemented to the various IDR plans, it’s imperative to fully understand the potential impact on your eligibility, payment reduction rate, and other factors. Below are some of the advantages and disadvantages of the recent changes in IDR plans, particularly SAVE:
Under IBR and PAYE, you would remain enrolled in the plan, but your monthly payment would no longer be based on income and instead revert to the amount you would pay under the 10-year Standard Repayment Plan (based on your initial loan amount, not your current one). If you then experience a decrease in income, you can again recertify to be eligible for income-based payments. You would never pay more than you would under the Standard Repayment Plan.
Under ICR and the current version of SAVE, your payment is always income-based, so you could wind up paying more than you would under the Standard Repayment Plan. In this case, it could make sense to switch to a different IDR plan or repayment strategy.
However, as SAVE still offers the lowest monthly payments based on discretionary income, it could remain the right plan for many borrowers even when factoring in an income increase, especially with the changes that are slated to go into effect in July 2024 that will further reduce payment amounts from 10% to 5% of discretionary income.
It’s also important to note that for low-balance borrowers, the forgiveness timeline under SAVE is much shorter (as short as 10 years for certain loan balances, effective July 2024), and so an increased income could speed up your timeline and potentially impact your ultimate forgiveness amount.
Don’t let the complexities of possible income limits deter you from exploring the benefits of IDR. Contact our team of experts for a comprehensive consultation and let us help you make informed decisions about your student loan repayment choices, tailored to your unique financial circumstances. Make the most of your educational investment by navigating the world of student loans with confidence.
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To qualify for PSLF, you must be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service); work full-time for that agency or organization; have Direct Loans (or consolidate other federal student loans into a Direct Loan); repay your loans under an income-driven repayment plan; and make 120 qualifying payments. For full program requirements visit: Federal Student Aid.