If you are one of the 20 million borrowers with a federally backed student loan, you may qualify for a new repayment program. Earlier this summer the Biden administration announced a new plan called Saving on a Valuable Education (SAVE). Some parts of the plan became active this week.
Under SAVE payments will be based on a borrower’s income and family size. Those making under $30,000 annually will have differed repayment until their income increases.
Undergrad loan borrowers will pay no more than 5% of their discretionary income. (Meaning after taxes and basic necessities like food and shelter are accounted for.) Graduate school loan borrowers will pay 10%.
Under the SAVE plan as along as a borrower makes their agreed-upon monthly payment capitalized interest will not accumulate. (Capitalized interest is a money management approach needed in accrual accounting. It means tacking on interest to the total cost of a long-term asset or loan instead of counting it as an expense right away.)
There is an extended grace period for borrowers who miss payments from Oct. 1, 2023, to Sept. 30, 2024. Borrowers who miss payments during this time will not take a hit to their credit or loan status.
If you have a federally held loan (including direct subsidized, unsubsidized and consolidated) you qualify for SAVE.
If you have a Federal Family Education Loans (FFEL) or Perkins Loans held by a commercial lender you will need to consolidate those into a federal direct loan in order to qualify.
Parents who took out Parent PLUS loans are not eligible for SAVE.