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Borrowers overwhelmed by the stress of federal student loans have a new option to reduce their payments, eventually by as much as half.
The Biden administration's new income-based repayment program, known as "SAVE," opened for enrollment Tuesday and offers millions of borrowers a more affordable way to pay their monthly student loan bills.Due again in October.After a three year hiatus.
"Through the SAVE program we are making a commitment to each student," Education Minister Miguel Cardona told reporters on Monday afternoon. "Your payments from him will be affordable. He won't be burdened with interest or debt for the rest of his life."
In the coming days, more than 30 million borrowers will be invited to join the plan, which was first introduced in January, with monthly payments based on income and family size.
Unlike a previous White House plan to cancel up to $20,000 of federal debt, which was struck down by the Supreme Court in June, the payment option would become a permanent part of student loan options and be available to students. current and future borrowers. It also creates a new safety net that automatically places certain borrowers in the SAVE program after they fall behind on payments.
Borrowers who want to enroll in the SAVE (Saving Valuable Education) program need to act quickly: their application could take up to four weeks to process, according to a senior education ministry official. If you apply now, you'll have plenty of time to process your paperwork before the first payment is due, officials added.
Los prestatarios no obtendrán todos los beneficios del programa hasta el próximo verano porque algunas características no entrarán en vigor de inmediato. A continuación se ofrece una descripción general de cómo funciona el programa:
Who is entitled to a new payment plan?
Those with federal student loans for undergraduate or graduate study. Borrowers with undergraduate student debt may receive lower payments than graduate student borrowers.
Who is excluded?
parents who borrowed moneyPeople who pay their children's school fees with a Parent PLUS loan cannot enroll in the new program.
If parent borrowers can't repay their loans, they often only get the most expensive loans.revenue driven payThe plan, called an income-based repayment, requires borrowers to repay 20 percent of their discretionary income over 25 years; the rest is forgiven.
How does the new SAVE program work?
All income-based payment plans generally work the same way. Payment amounts are based on your income and family size and are adjusted each year. After a certain number of years (usually 20) of monthly payments, any remaining balance is forgiven. (The rest is taxed as income, even thoughtemporary tax rulesEliminate federal income tax exemptions by 2025).
The SAVE program replaces the revised "Pay What You Earn" (or "REPAYE") program and is more generous in several ways. First, it will reduce payments forstudent loansUp to 5% of discretionary income, less than 10% on REPAYE (15% on other plans).
Graduate student debt is also eligible, but borrowers will pay 10% of their discretionary income on this portion. If you have both undergraduate and graduate debt, your payments will be weighted accordingly.
The new rules also adjust the payment formula by protecting more income to meet basic needs, thus reducing overall payments. The change would also allow more low-income workers to qualify for $0 payments.
What is discretionary income?
Once you've paid basic necessities like food and rent, any remaining income is considered discretionary;Income-Based Payment PlanBorrowers must pay a certain percentage of discretionary income.
The SAVE program adjusts the payment formula to provide more income for those basic needs, resulting in less discretionary income and lower payments.
SAVE increases the income protected by forgiveness to 225 percent of the federal poverty level, roughly equivalent to $15 per hour for a single borrower. If your income falls below that figure, you won't have to make monthly payments.
In other words, a single person making less than $32,805 a year would have $0 in monthly payments. The same applies to someone in a family of four who makes less than $67,500. That should help an additional 1 million low-income borrowers qualify for zero-dollar payments, the Education Department said.
Under the old REPAYE program, the lowest incomes were protected, up to 150% of the federal poverty level.
Will the interest processing method change?
Yes. This is one of the most attractive features of the new program. If the borrower's monthly payments are not enough to cover the interest owed, the Ministry of Education will cancel the part that is not covered.
In other words, if a borrower owes $50 a month in interest but only pays $30, the remaining $20 will be gone as soon as the payment is made. Monthly interest payments will be waived for those whose income is too low to pay.
The new rule will provide relief to those who made payments but saw their balances grow due to not paying enough interest.
Does the plan take effect immediately?
main threeConstituent parts of the plan.Available now, including multi-income payment formula protection, which will reduce payments to zero for more borrowers. A new treatment for unpaid interest is also in effect. Finally, married borrowers who file separately will no longer have to include their spouse's income when calculating their monthly payments. (Their spouses would also be excluded from family size.)
But other benefits, including a 10 to 5 percent cut in discretionary income for student loans, won't take effect until July.
Once the program is fully operational next summer, many borrowers will see a 40% drop in their monthly bill per dollar compared to the REPAYE program. But payments for those with the lowest incomes could be cut by 83%, while those with the highest incomes would see a reduction of only 5%.
Has anything changed for borrowers with microloan balances?
Yes, but this feature will come into effect next summer.
Microloan borrowers (or those with an original balance of $12,000 or less) will make monthly payments for 10 years before paying off, instead of the more common 20-year repayment period in other income-based repayment plans. For every $1,000 borrowed over $12,000, the monthly payment increases one year before the balance is forgiven, up to a maximum of 20 or 25 years.
Is a new plan always the best option?
The SAVE program is expected to provide the lowest repayments for most borrowers and may be the best option for most borrowers. The loan simulator tool is located atStudent support networkcan help you figure out which payment plan makes the most sense based on your situation and goals.
When you sign up, it should automatically use your credit in the calculation. (If some federal loans are missing, you can add others.) You can also compare the plans side by side: over time, what the monthly and total costs are, and whether any debt can be forgiven.
What about borrowers who defaulted before payments stopped?
Borrowers who defaulted before payment stoppage (which occurs in the event of a delay of at least 270 days) receivedNew beginningand is considered a one-time payment. This means they can sign up for SAVE or any other payment plan.
but they shouldtake certain stepsDo this, and do it before September 2024, to avoid long-term loan defaults.
Here's how: Contact the Department of Educationdefault analysis group- traversephone,Online or by mail, and apply for a loan with the Fresh Start program. Default groups can also help you sign up for payment plans based on income, including SAVE.
The team will transfer your loan to a regular loan servicer and remove the default from your credit report.
"Then their new administrator will place them in I.D.R. and they will qualify for the minimum monthly payment," a Department of Education spokesperson said. "For most borrowers, it's a savings."
Can delinquent borrowers apply?
Borrowers who fell behind on their monthly student loan bills before their payments stopped will also get a fresh start and can participate in the SAVE program like any other borrower.
In the future, borrowers who default for 75 consecutive days will be automatically enrolled in the SAVE program, as long as they agree to release their federal tax information to the Department of Education. The policy will go into effect in July next year.
How do I register?
You can register online through the following URLStudentAid.gov/SAVE; Borrowers will be able to see their payment amount before applying. Administration officials said the process would take no more than 10 minutes. After logging in, you can check the status of your login in your account dashboard.
In the coming months, lenders will also be able to help borrowers register and "self-certify" their income through the servicer's website or phone, CEO Scott Buchanan said. Tax documents are not required.Student Loan Servicing Alliance, an industrial trade group.
Those who are already registered in REPAYE do not need to do anything: they will be automatically transferred to SAVE and their payments will be matched. You can also switch to SAVE from other income-based payment plans without rescheduling your payments.
For more information on payment initiation, see hereOur guide.
What happens if I try to sign up and my application can't be processed in time for my first payment?
You will be put on hold, which means no payment will be made during the next billing cycle.
Do I have to do anything to stay registered?
Your payment amount is adjusted each year based on your income, and your income must be updated each year.
However, if you allow the Department of Education to access your income information through the IRS (which you can now do as part of the registration process), you won't have to reverify your income each year because it is done automatically.
Tara Siegel BernardCovers personal finances. Before joining The Times in 2008, she was a deputy editor for personal finance website FiLife and an editor for CNBC. She also worked for Dow Jones and is a regular contributor to The Wall Street Journal. More about Tara Siegel Bernard
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