Student Loan Repayment Changes Loom

2 weeks ago 0

Starting July 1, significant changes in the student loan system will require millions of borrowers to select new repayment plans. The Trump administration has initiated these changes following the enactment of a major tax and policy bill last summer.

Affected are those enrolled in the Biden-era repayment plan known as SAVE, which stands for Saving for a Valuable Education. This plan is being dismantled, and approximately seven million participants must find new repayment options and resume payments. Legal challenges led by Republican attorneys general had previously paused these payments for nearly two years.

Federal loan servicers will begin notifying SAVE enrollees about the deadlines for taking action. Borrowers must choose among new repayment options. However, some may face higher monthly payments at a time when inflation is rebounding, and costs for essentials like utilities, gas, and healthcare are rising.

“There’s a lot of anxiety out there,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, advising borrowers during this transition. “It’s not just about the student loan payments going up. It’s everything hitting at once.”

Besides SAVE enrollees, other borrowers will also be affected, as two new repayment programs are introduced and several existing ones are phased out. Understanding these options is crucial for creating a financial plan.

Monthly payments will vary depending on the selected repayment plan. For instance, a borrower with $60,000 in student debt at a 6.8% interest rate will have different payment requirements based on their adjusted gross income:

With a $30,001 income, the RAP plan payment is $25, whereas IBR (15%) results in no charge.
A $70,001 income sees RAP payments of $358 and PAYE payments of $319.
Those earning $110,001 pay $867 under RAP, with a consistent $652 for PAYE.

Note: Due to hard income cutoffs in the new RAP plan, an income increase of a single dollar can elevate a borrower to a higher payment bracket.

The Pay as You Earn (PAYE) and Income-Contingent Repayment (ICR) plans will not be available after July 2028.