Trump administration makes major changes to student debt relief program
The Department of Education is seeking to disqualify employers found to have engaged in “unlawful conduct” in new student loan forgiveness regulations.
Millions of borrowers still enrolled in expired SAVE plans need to take action now as federal student loan rules change on July 1st.
More than 300,000 federal student loan borrowers recently exited the Biden administration-era Savings for a Valuable Education (SAVE) plan, but millions more remain at risk as the July deadline approaches. Your loan servicer will contact you around July 1st and you will have 90 days to choose a new repayment option. Experts warn that procrastinating can limit your options and lead to higher monthly payments on standard plans.
For borrowers who are trying to keep their payments affordable, or continue to make progress toward Public Service Loan forgiveness or income-based forgiveness, a key question is what to do before the transition becomes automatic. The Department of Education will also change the repayment plans available from July 1 onwards. So now is one of those moments where reviewing your account and options can make a difference.
SAVE borrowers should consider repayment options now
Experts urge borrowers to visit studentaid.gov now to see available repayment plans without waiting for automatic transfer. Bright Horizons’ Stacey McFettle said borrowers are strongly encouraged to consider and apply for other income-driven plans before that deadline.
Otherwise, the government typically chooses a repayment plan with higher monthly payments.
Leaving SAVE can be problematic if you need forgiveness credit
McFettle said SAVE borrowers who continue to make monthly payments should know that those payments are not eligible for public service loan forgiveness or income-based forgiveness.
He said existing borrowers can immediately switch to IBR (income-based repayment) and their payments will then count toward PSLF and IDR forgiveness. For SAVE borrowers, a focus on maintaining credit is one of the most obvious action items.
For those who haven’t made their payments, interest continues to pile up, she said.
Auto-enrollment can put your payment plan at a disadvantage
If SAVE borrowers do not take action, the Department of Education will automatically enroll some borrowers in one of the new plans starting July 1.
Most likely, the Department of Education will automatically enroll you in a default standard repayment plan. This plan provides fixed monthly payments over a period of time, ensuring that the loan is fully repaid by the end of the period. The idea is that you’ll pay less interest over the life of your loan, but your payments will be fixed regardless of your income, and in some cases could be more than what you’re currently paying.
After July 1st, your options will be limited
Some current repayment plans will be phased out or no longer available to new borrowers starting July 1.
Enrollment in the income-based plans Pay as You Earn (PAYE), Income-Contingent Repayment (ICR), and Income-Based Repayment (IBR) will be discontinued for loans made after July 1. Existing IBR plans will be discontinued for older loans.
Starting July 1, only two repayment plans will be available to new borrowers: the Standard Repayment Plan and the Repayment Assistance Plan (RAP). RAP is an income-based plan with payments ranging from 1% to 10% of your adjusted gross income, or $10 per month if you make less than $10,000 a year, with forgiveness available after 30 years of repayments.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday..
