Student Loan Payments Set to Halve for SAVE Plan Participants Starting July

By Madz Dizon

Jun 22 2024, 05:23 AM EDT

Student Loan Payments Set to Halve for SAVE Plan Participants Starting July — An activist holds a cancel student debt sign as they gather to rally in front of the White House in Washington, DC, on August 25, 2022. STEFANI REYNOLDS/AFP via Getty Images

As part of the plan's regulated changes, federal student loan servicers have been instructed to place certain SAVE borrowers on administrative forbearance for the month of July.

New Student Loan Plan Halves Payments for Borrowers

The administration has announced that starting in August, borrowers with only undergraduate loans may see a significant reduction in their monthly payments under SAVE.

This change is due to a revised calculation method for determining their payments.

At present, payments are set at 10 % of a borrower's discretionary income. The plan outlines discretionary income as the amount left over after deducting 225 percent of the poverty guideline for your state and family size from your income.

Beginning on July 1, individuals will only need to make payments equal to 5 percent of their discretionary income, Bankrate reported.

Graduate Borrowers Advised to Apply for PAYE Before July 1 Cutoff

Graduate school borrowers may also see some benefits, although the extent of the payment reduction will vary based on the ratio of their undergraduate to graduate debt.

Starting July 1, new enrollment for the Pay as You Earn (PAYE) plan will no longer be available. If you are currently on PAYE, your plan will remain unchanged. If you want to minimize your payments over time, it's important to apply for PAYE as soon as possible.

If you submit a PAYE application before July 1, you will be eligible for the plan, even if your application is approved after that date. Graduate school loan borrowers or individuals with potential high incomes may find PAYE to be a suitable option.

It is worth considering for certain borrowers. Carefully examine the plan if you find yourself in any of these situations:

You have outstanding student loan obligations from your graduate studies.
You anticipate a substantial increase in your future earnings.
You qualify for PAYE.
Unfortunately, you do not meet the requirements for the New IBR program.

According to The Mercury News, PAYE can provide significant advantages for individuals who are married and have a strong combined household income, as well as those who anticipate high-earning careers or are already in such positions and do not qualify for the New IBR plan.