Recent Changes to Income-Driven Repayment (IDR) Plans
Let's explore the recent changes to IDR, including the introduction of the Saving on A Valuable Education (SAVE) plan.
Published October 13, 2023
8 min read
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.
Updates to IDR: an overview
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:
Extended payment periods
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.
Increased income thresholds
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.
Loan forgiveness
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.
A brief history of IDR
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:
- Expanding eligibility to more borrowers
- Lowering monthly payment amounts
- Shortening the eligibility timeline for forgiveness
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.
Recent changes to individual IDR plans
IDR Comparison Chart
| 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 |
The new Saving on a Valuable Education (SAVE) plan
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.
Advantages and disadvantages of IDR plan changes
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:
Advantages
- Reduced monthly payments: The SAVE Plan significantly reduces monthly payments by increasing the income exemption from 150% to 225% of the poverty line, and further offering a halved monthly payment amount starting in July 2024.
- Income thresholds: With SAVE, your monthly loan payment could be zero under certain conditions, such as if you are a single borrower earning $32,800 or less or a family of four earning $67,500 or less (higher amounts in Alaska and Hawaii). Borrowers earning more than these thresholds will save at least $1,000 per year compared to current income-driven repayment plans.
- No interest accrual: If you make your monthly payment, your loan balance won’t grow due to unpaid interest. For example, if $50 in interest accumulates each month and you have a $30 payment, the remaining $20 would not be charged.
- Excludes spousal income: The SAVE Plan excludes spousal income for borrowers who are married and file their taxes separately.
Disadvantages
- Long-term repayment: While reduced monthly payments can be a relief, it also means you’ll be repaying your loans over a longer period. This could result in paying more in interest over time.
- Impact on credit: Missed payments may negatively impact your credit score, so staying on top of your monthly bills and obligations is important to protect your creditworthiness.
- Higher-income borrowers: If you are a higher-income borrower, you may not qualify for the same level of support under certain IDR plans. Consider alternative repayment strategies and weigh your options accordingly.
IDR will grow with you
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.
Don't miss the latest financial resources.
Get tailored Laurel Road resources delivered to your inbox.
Search Results
Disclaimers
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice, legal, financial, or tax advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. Calculators do not include the fees and restrictions that certain products may have. This calculator does not indicate whether you would qualify for a Laurel Road loan. Please visit the applicable banking product pages on laurelroad.com for specific terms and conditions.
This information provided is for informational purposes only and does not substitute consultation with a legal, tax or investment professional for important financial decisions. Laurel Road assumes no liability for loss or damage incurred by use of the information provided. Please visit laurelroad.com for full product details, terms and conditions.
-
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.