In July, borrowers enrolled in the SAVE plan will have their payments calculated using 5% of their income. (iStock)
President Joe Biden’s Saving on a Valuable Education (SAVE) plan has lowered student loan payments for 153,000 borrowers. In July, the plan is set to drop payments even more for nearly every borrower enrolled.
The plan uses a borrower’s income to determine payment amounts. Until July, the formula considers 10% of a borrower’s discretionary income when calculating these monthly payments. Starting on July 1, the repayment formula will start basing payments on 5% of borrowers’ income instead, lowering the payment of every person enrolled in the SAVE plan.
This drop to 5% only applies to those paying down undergraduate student loans. For borrowers with a mix of undergraduate and graduate loans, they’ll pay a weighted average of between 5% and 10% of their income.
The same forgiveness applies under the plan. After 20 or 25 years, depending on whether borrowers have graduate loan debt, the remaining balance of the loans is forgiven. This includes retroactive payments borrowers made before they enrolled in the SAVE plan.
If you have private student loans, federal relief doesn’t apply to you, but you can potentially lower your payments by refinancing. Visit Credible to find your personalized interest rate without affecting your credit score.
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Some borrowers have until 2025 to apply for forgiveness
Parents who take out Parent PLUS loans for their children are eligible for a loophole that could lower their payments. However, this loophole is set to end in 2025.
Unfortunately, Parent PLUS loans don’t qualify for President Biden’s SAVE plan, but they do qualify for consolidation options. The loophole they qualify for is called double consolidation.
Parents essentially consolidate each of their loans twice and, in the end, do become eligible for the SAVE plan. For those with two or more Parent PLUS loans, parents can consolidate them into two separate Direct Consolidation loans. After these consolidations, parents can then consolidate those two loans into a single Direct Consolidate loan that’s eligible for SAVE plan enrollment.
For parents who have a Parent PLUS loan and other federal loans, the process is similar. The Parent PLUS loan needs to be consolidated first and then that loan and the rest of the federal loans get consolidated together in a Direct Consolidation loan, which is also eligible for the SAVE plan.
If you don’t have federal student loans that qualify for these programs, refinancing can also help save you money. You can use Credible to compare student loan refinancing rates from multiple private lenders at once.
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Thousands of defrauded student loan borrowers set to get checks from the FTC
Many borrowers who were taken advantage of by debt relief scammers will receive a check in the mail soon to refund some of the money they lost.
The Federal Trade Commission plans to send more than $4.1 million in refunds to 27,584 consumers affected by these scams.
These consumers were lured into fake forgiveness claims by sham companies such as Mission Hills Federal, Federal Direct Group, National Secure Processing and The Student Loan Group.
The 2019 complaint the FTC filed alleged that these companies got borrowers to pay thousands of dollars in illegal fees and falsely claimed they would lower payments for borrowers.
These fraudulent companies also tricked consumers into sending payments directly to them, saying they were going to take over the servicing of borrowers’ loans.
Recipients of these checks will need to cash their checks within 90 days, which should be indicated on the check.
“Don’t trust anyone who contacts you promising debt relief or loan forgiveness, even if they say they’re affiliated with the Department of Education,” the FTC advised.
“Scammers try to look real, with official-looking names, seals and logos,” it continued. “They promise special access to repayment plans or forgiveness options — which don’t exist. If you’re tempted, slow down, hang up and log into your student loan account to review your options.”
If you want help lowering your monthly student loan payments, consider refinancing your loans into a private loan with a lower interest rate. To see if refinancing is right for you, view this rates table from Credible that compares rates from multiple lenders at once.
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