The student loan pause is coming to an end, and millions of Americans are barreling toward repayment.
Borrowers have more student loan payment plan options than ever before. There is a confusing array of programs, each with their own methods for calculating monthly student loan payments. Borrowers have a lot of factors to consider when choosing a payment plan.
But many may not realize that enrolling in a new Biden administration initiative could wind up cutting them off from several other student loan repayment plans. And a Republican-led proposal would eliminate several student loan payment plans, as well.
Here’s what borrowers need to know.
Biden’s New SAVE Plan Replaces REPAYE When Student Loan Payments Resume
Last month, the Biden administration unveiled the Saving on a Valuable Education (SAVE) plan. This new Income-Driven Repayment, or IDR, plan is designed to be more affordable than other options. SAVE will lower student loan payments for most borrowers compared to other IDR plans, and will also include several other beneficial features including interest subsidies and new flexibilities for married borrowers. The SAVE plan will be phased in over the course of the next year, but several benefits will be available to borrowers when student loan payments resume later this summer.
SAVE is effectively replacing another IDR plan called Revised Pay As You Earn (REPAYE). Borrowers who are already enrolled in REPAYE will automatically be able to receive the new features and benefits of the SAVE plan. Future borrowers will not be able to enroll in REPAYE after July 2024.
New Student Loan Repayment Plan Could Cut Off Access To Other Programs
But REPAYE is not the only IDR plan that will be eliminated by SAVE. When the Biden administration first proposed overhauling IDR last year, officials had indicated that they wanted to simplify and streamline IDR, which has multiple student loan repayment plan programs, each with their own confusing features and methodology.
That original intent to simplify IDR is now codified in the new SAVE regulations — possibly to the detriment of some borrowers. Under the new regulations, borrowers who choose to switch to SAVE from other IDR plans, such as Income Contingent Repayment (ICR) or Pay As You Earn (PAYE), will not be able to re-enroll in those plans after July 1, 2024. This is a significant policy shift, as up until now borrowers have largely been free to change IDR programs.
While SAVE will have many features and benefits that will make it a better and more affordable program than other IDR plans for most borrowers, this will not be universally true. PAYE, for example, has a 20-year repayment term for all eligible borrowers before reaching the threshold for student loan forgiveness. In contrast, SAVE will only have a 20-year term for borrowers with undergraduate loans; borrowers with graduate school loans would be on a 25-year term. This could make PAYE a more attractive option in certain cases — but switching to SAVE could close the door on that shorter student loan forgiveness term.
Switching to SAVE could also impact borrowers on the ICR plan. ICR is typically the most expensive IDR plan and won’t make financial sense for most borrowers. But ICR has a unique two-track formula for calculating student loan payments. And in some cases for borrowers with relatively low balances relative to their incomes, ICR can be a more attractive repayment option for borrowers who must be on an IDR plan — such as for borrowers pursuing Public Service Loan Forgiveness. But as with the PAYE plan, borrowers who leave ICR for the SAVE plan cannot return to ICR after July 1, 2024.
Thus, borrowers who are considering enrolling in SAVE should make sure it’s the right long-term student loan repayment approach before doing so. Borrowers who don’t switch to SAVE should continue to have access to their current IDR plan, as long as they remain enrolled.
Republicans Propose Overhauling Student Loan Payment Plans
It’s not just the Biden administration working to eliminate some IDR options. Last month, Republican congressional leaders unveiled the Federal Assistance to Initiate Repayment (FAIR) Act, a collection of bills that would transform the federal student loan system.
The FAIR Act would eliminate most existing federal student loan repayment plans, including the current IDR system, and replace them with just two payment plans: a Standard plan, and an IDR plan. The new IDR plan would not be as generous as Biden’s SAVE plan, but would instead be somewhat similar to the current versions of PAYE and REPAYE.
“Current borrowers paying under one of the existing fixed repayment plans eliminated under the bill will be able to continue paying under those plans or choose to pay under the standard 10-year plan or the new IDR assistance plan,” according to a fact sheet released in June. Meanwhile, the bill “automatically places current borrowers paying under an income-based or income contingent plan in the new IDR plan.”
The FAIR Act has little to no chance of passing in the current Congress, given that Democrats control the Senate and the White House. But it illustrates that there is a bipartisan appetite for eliminating some IDR options.
What Borrowers Should Do As Student Loan Payments Resume
Borrowers are facing unprecedented confusion as the student loan pause comes to an end and payments resume after a three year hiatus.
According to the Education Department, the student loan pause officially ends at the end of August. Interest will start accruing again in September, and student loan payments will resume in October.
Borrowers should start evaluating their repayment options now at StudentAid.gov. Borrowers should also log in to their StudentAid.gov portal to update their contact information and confirm who their student loan servicer is. Millions of borrowers have experienced student loan servicing changes during the last three years, and may not even know it.
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