When federal student loan borrowers start making payments again in September, IDR plans like REPAYE, PAYE and IBR will look very different. By next summer, most IDR borrowers will be on the SAVE plan.
The good news is that things are looking much better for the better. For many, monthly bills will be lower. For others, forgiveness will come sooner.
The downside is that a transition period can be confusing. Fortunately, despite the changes in names and terms, simplification is on the way.
REPAYE (Revised Pay As You Earn) vs. SAVE (Save on Valuable Education)
The most significant changes on the horizon are coming to REPAYE. Borrowers will see some changes happen right awayand further changes will take place in July 2024.
The big picture is that REPAYE is ending and will be replaced by SAVE. Think of it as a two-phase process.
Phase I begins with the restart of the refund. REPAYE is still called REPAYE, but the calculations are a bit different. Borrowers still pay 10% of their Discretionary Income each month, but the Discretionary Income formula is changing. Instead of using 150% of the federal poverty level in the calculation, the number jumps to 225%. For borrowers, this means a smaller monthly bill.
The next immediate change is that married borrowers who file their taxes separately can exclude spousal income from REPAYE calculations. This improvement makes REPAYE a better option for married borrowers.
Finally, REPAYE will start covering 100% of the excess interest generated each month by the loan. The current REPAYE subsidy only covers 50%. For example, a loan of $10,000 at 6% interest generates $600 in interest per year or $50 per month. In this example, if your REPAY payment is $20, that means $30 per month in excess interest. In the past, REPAYE immediately forgives 50% of this interest, which means our borrower has $15 immediately forgiven. Now REFUND/SAVE will cover the $30 of unpaid monthly interest.
Phase II happens on July 1, 2024. REPAYE officially becomes the SAVE plan, and the other provisions of SAVE take effect. These provisions include early forgiveness for borrowers with lower balances and lower payments for borrowers with undergraduate debt.
Deepen the SAVE plan: For a deep dive into SAVE rules and a calculator for estimating SAVE payments, see the SAVE calculator.
REPAYE/SAVE Registration and Eligibility
The vast majority of IDR borrowers will want to enroll in the SAVE plan.
To enroll, borrowers must enroll in the REPAYE plan. Those who are already in REPAYE will see their payments automatically recalculated according to the new conditions. Once REPAYE has officially ended, borrowers on REPAYE will be automatically enrolled in SAVE. Borrowers can register for REPAYE or update their IDR registration on the Ministry of Education IDR Registration Page.
All direct federal loans are eligible, including Federal Stafford (subsidized and unsubsidized), Graduate Plus, and Direct Consolidation. The only exception is that direct consolidation loans that include Parent PLUS loans are not eligible.
Borrowers with FFEL loans and Perkins loans are not eligible. However, these borrowers can consolidate the debt into a federal direct loan to become eligible. Besides, Federal Direct Consolidation Right Now Shouldn’t Reset Progress Towards Student Loan Forgiveness.
Federal loans in default are also not eligible. However, new start program will allow borrowers to resolve the default and enroll in REFUND/SAVE.
PAYE (Pay As You Earn) lapses
PAYE was a remarkable reimbursement plan because it offered the lowest monthly bill when it was created.
With the creation of the SAVE plan, most borrowers will not qualify for PAYE. SAVE will always offer lower monthly payments than PAYE. Moreover, more borrowers be eligible for $0 per month payments under SAVE.
It is Ministry of Education policy that no new borrowers can enroll in PAYE. However, those currently on PAYE can stick with this plan.
One of the reasons a borrower might stick with PAYE is if they have graduate loans and are approaching the 20-year IDR discount. On SAVE, a borrower with graduate debt must make payments for 25 years before obtaining IDR forgiveness. Borrowers seeking this form of forgiveness must balance the higher payments on PAYE compared to earlier forgiveness for those with graduate debt.
IBR (Income Based Reimbursement) is becoming a rarely used option
Borrowers on IBR pay 10% or 15% of their monthly discretionary income. The percentage depends on when they took out their first student loan. Those who borrowed after 2014 only pay 10%. Those with older loans pay 15%.
The IDR analysis will be almost identical to the PAYE analysis. REPAYE/SAVE is the cheapest and most affordable repayment plan for most borrowers.
The only exception is for borrowers with graduate debt who apply for IDR forgiveness after 20 years. SAVE will make these borrowers wait 25 years.
The big difference between PAYE and IBR in the future is that IBR will still be available to most borrowers, while PAYE disappears immediately for those who are not currently enrolled.
However, borrowers lose IBR eligibility after making 60 payments on SAVE after July 1, 2024. The purpose of this rule is to prevent graduate borrowers from making low payments on SAVE for 19 years and 11 months and then go to the IBR and try to get a pardon. after 20 years.
The big decision for borrowers with graduate loans considering IDR forgiveness will be deciding between lower SAVE payments compared to the earlier IDR forgiveness.
What about PSLF Borrowers? Borrowers applying for loan forgiveness from the public service will not have to worry about this issue. Eligibility for the PSLF occurs after 120 qualifying payments (worth 10 years). These borrowers can make payments on any eligible repayment plan, including SAVE.
ICR (Income Contingent Reimbursement) does not change much
The ICR was the first income-driven repayment plan, but it’s also the worst.
Going forward, new students will no longer be able to enroll at ICR. However, borrowers with consolidated Parent PLUS loans can still enroll in ICR.
In the past, and under the new rules, parent PLUS loan consolidation will be the only way to qualify Parent PLUS debt for PSLF or an income-based reimbursement.
Unfortunately, Parent PLUS loans cannot be eligible for REPAYE or SAVE. Thus, it remains essential not to consolidate Parent PLUS loans borrowed for your child with federal student loans borrowed for your education.
What happens if I earn too much to REFUND/SAVE?
There is no income cap for enrollment in REPAYE or SAVE.
Borrowers with substantial incomes may have large payments, but there is no salary threshold for enrollment or SAVE calculations.
However, some borrowers may have such large incomes that other balance-based plans, such as the standard 10-year repayment plan, become more affordable.
Choosing the best plan for restarting
Despite the changes, things are pretty straightforward for most borrowers heading into paying off the federal student loan and restarting interest.
Most people will want to sign up for the REPAYE plan. It will have the lowest monthly payments, an interest bonus and eventually become the SAVE plan.
FFEL and Perkins borrowers should probably consolidate before the Deadline for updating the number of IDRs and register to REFUND/SAVE.
Parent PLUS Borrowers will not be able to benefit from the new repayment plan. Their strategy has not really changed.
Borrowers with graduate debt are the only ones to face a decision. They will need to compare the monthly savings of REPAYE/SAVE to the IDR rebate over 20 years. Notably, not all borrowers with graduate loans face this problem. If your loans are too old to qualify for PAYE or IBR for new borrowersREFUND/SAVE will be the best option.
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