As part of the President’s and Department of Education’s (DOE) response to the Supreme Court decision on loan forgiveness, they have created a new repayment method. It is called SAVE or Save on A Valuable Education. It replaces the Revised Pay As You Earn method or REPAYE. This article is a comprehensive guide; we will unlock the secrets of the SAVE repayment method and provide you with the Pros and Cons of the program.
From understanding the intricacies of the SAVE program to exploring repayment options and strategies, this article will equip you with the knowledge and tools to confidently navigate the repayment decision process. We’ll delve into common challenges faced by many student loan borrowers as repayment is ready to begin.
Whether you’re just restarting your repayment journey or have yet to make payments due to the Student Loan National Forbearance, PayForED’s guide is designed to help you determine if SAVE is the best repayment option for your situation.
The Basics of SAVE Repayment Method
The student loan repayment process is confusing since there are nine methods to consider. The SAVE program is an Income-Driven Repayment method or IDR. These methods are unique to student loan repayment. The monthly payment amount is based on the borrower’s Adjusted Gross Income (AGI). The AGI number gets generated as part of the tax return process.
Traditional loan repayment typically uses the amount borrowed, interest rate, and number of months of payments to determine the payment amount. The most common would be a car or mortgage payment. Student Loan Repayment has 5 IDR methods to select from and four traditional methods. The different methods are one of the reasons why it is so confusing.
Under the SAVE program, borrowers enrolled in the REPAYE method will automatically get enrolled in the SAVE method. Borrowers in other repayment methods can move to SAVE by enrolling on the SAVE website. As the initial features appear attractive, it is only for some, so you need to understand the details before making that decision.
With SAVE classified as an IDR method, it qualifies as a repayment method for the various federal student loan forgiveness programs.
SAVE Repayment Calculation Pros
There are significant repayment calculation differences and advantages to the SAVE method compared to the other IDR methods. Here is a list:
- Uses 225% of the poverty table amount rather than the standard 150% of the other IDR methods.
- Unpaid interest will not be added to the loan balance. This process is called negative amortization, the most significant risk of all the IDR methods.
- Applies a 5% charge to the undergraduate loan portion of the payment and not the most common 10%.
- Borrowers can file married separate under SAVE method versus REPAYE, which was not allowed.
- A 0 payment will have a higher income limit.
- Provide loan forgiveness to lower balance borrowers after 120 payments.
As you can see in the chart below, the differences between SAVE and REPAYE are significant. I will discuss why these differences may become a problem in the con section of the article.
The chart above shows how the SAVE IDR method offers borrowers a higher probability of loan forgiveness than the REPAYE method. Similar outcomes would occur if the other IDR methods were used. This comparison is why the SAVE method could be beneficial to many borrowers.
SAVE Method Implementation Has 2 Parts
The new SAVE method implementation has two parts. The first will start on October 1, with the student loan repayment restart. This part of the calculation change will include:
- 225% use of the Poverty allowance
- Ability to use only the borrower’s income, not the joint income requirement under REPAYE. A change of income request would need to be submitted, and the borrower’s 2023 taxes would need to be filed married and separate to take advantage of this change.
- Unpaid interest will no longer be added to the loan balance
Starting on July 1, 2024, the remaining changes will go into effect. This will include
- The 5% charge is applied to the portion of debt associated with undergraduate studies only.
SAVE Repayment Calculation Cons
As you can see in the above examples, the SAVE repayment method can offer significant savings for many borrowers. The problem is these are not normal times, and the rules are different due to the National Forbearance. These modifications are specifically true for borrowers using any IDR method.
As I mentioned earlier, the IDR methods are different, and many borrowers perceive that they are similar to the traditional methods. Under the IDR methods, borrowers need to verify their income each year, and here is where the twist comes in.
If you switch to SAVE, you are changing IDR plans, which triggers an Income Recertification. The SAVE enrollment may initially result in a higher payment until the total SAVE Implementation is complete. So, some IDR borrowers’ income recertification will not occur until 2025. By moving to SAVE, you may be paying more due to your current income.
Under both the REPAYE and SAVE methods, a monthly payment cap does not exist. All other IDR payments are capped based on the borrower’s 10-year standard rate once their income exceeds the Hardship Limit. Each borrower’s income limit is unique based on their loan balance and family size.
For borrowers who are or will be high-income earners, SAVE may not be the best option for you now.
SAVE Repayment Legal Challenges
The initial DOE cost estimate for the SAVE program was approximately 140 billion over the next few years. The Congressional Budget Office (CBO) had estimated this program to cost over $320 Billion before the forgiveness decision.
Wharton did an updated analysis to include the balances without forgiveness. Depending on a few variables, their estimates were between $380 Billion and almost $600 billion over the next 10 years. This program cost becomes a significant problem for the SAVE program and could follow the same path as the forgiveness program.
The Supreme Court decision was based on a constitutional rule that the executive branch can only create plans that cost significant money with congressional approval. This case is different since it is a modification of an existing program, and the DEO did follow some of the rules for the modification. The risk is the cost of the program changes.
Some Republicans have already submitted proposals to stop these changes from starting. As a point of reference, the loan forgiveness lawsuits took three months to move through the court system. The same thing could happen just as borrowers need to make payments. This halt could get very confusing for borrowers if this should happen.
Common Mistakes to Moving to SAVE
Navigating SAVE loan repayment can be challenging, but avoiding common mistakes can help you stay on track toward financial freedom. One common mistake is ignoring the details of each IDR option before switching. This decision is where the loan service may be limited in their advice.
One of the issues we will see in the restart is the capacity of the loan servicers. There are 30 million borrowers ready to start repayment. The student loan servicer system is designed to handle only about 325 -350 thousand calls per month.
Another significant issue is the loan servicers legally cannot provide all of the answers you may need to make the best decision. As more borrowers use the IDR method, the repayment amount is based on your tax data and proper management of your AGI. Loan servicers cannot legally provide tax or personal financial advice to callers, which becomes another problem for borrowers.
This tax planning will become more critical in the coming year since the IRS and DOE are beginning to integrate the IRS into the DOE systems. The tax preparers and financial advisors will become the new key advice givers to borrowers.
Creating a personalized repayment plan
A personalized SAVE repayment plan can provide a roadmap for success. Start by gathering all the necessary information about your loans, including interest rates, repayment terms, and loan servicer contact details. Next, evaluate your current financial situation and determine how much you can repay toward your monthly loans.
Consider contacting your loan servicer or a financial advisor for guidance on selecting the most suitable repayment plan for your circumstances. They can help you explore income-driven repayment plans, loan consolidation, or refinancing options.
Resources for managing repayment
Managing SAVE repayment can be overwhelming, but numerous resources are available to support you. Here are some valuable resources to consider:
- Loan Servicer Websites: Visit your loan servicer’s website for detailed information about your specific SAVE loans, repayment options, and helpful tools.
- Financial Literacy Programs: Many organizations offer free financial literacy programs to help you better understand personal finance and loan management. Take advantage of these resources to enhance your financial knowledge.
- Online Tools and Calculators: Utilize online tools and calculators to estimate your monthly payments, explore different repayment scenarios, and evaluate the impact of making extra payments.
Seeking professional help with Repayment
If you are overwhelmed or need clarification about your SAVE loan repayment options, seek professional help. A financial advisor or student loan counselor can provide personalized guidance based on your unique circumstances.
These professionals can help you navigate complex loan terms, explore repayment strategies, and even negotiate with your loan servicer on your behalf. Investing in professional assistance can ultimately save you time, money, and stress.
Conclusion: Achieving financial freedom through successful SAVE repayment
By unlocking the secrets of successful SAVE repayment and implementing the strategies outlined in this guide, you can achieve financial freedom and overcome the burden of student loan debt. Remember, staying proactive, communicating with your loan servicer, and seeking help when needed are essential. PayForED is here to help!
Don’t let SAVE loans hold you back from achieving your financial goals. With the proper knowledge, tools, and mindset, you can take control of your SAVE loan repayment and pave the way toward a brighter financial future. Start today and unlock the secrets to successful SAVE repayment.
