If you’re one of the almost 45 million Americans with student loan debt, you’re likely familiar with Income-Driven Repayment (IDR) plans. These plans have provided financial relief for millions of borrowers, offering flexibility and stability to borrowers who would otherwise struggle to manage high monthly student loan payments relative to their income.
Navigating the dynamic student loan landscape can be complicated and overwhelming. In this article, we’ll explore changes to the federal IDR program, including the Saving on A Valuable Education (SAVE) plan, and how the program has evolved over time, especially in response to the unique challenges posed by the COVID-19 pandemic and other developments.
Updates to IDR: an overview
IDR plans have undergone significant transformations in recent years, with legislative changes expanding their reach and making them even more accessible to borrowers. Here are some key updates to be aware of:
A brief history of IDR
The first income-driven plan was Income-Contingent Repayment, which became available to borrowers in 1995. Over time, new plans have been added through legislation in order to address potential limitations, with the intention of:
- Expanding eligibility to more borrowers
- Lowering monthly payment amounts
- Shortening the eligibility timeline for forgiveness
These efforts were often aided by current events, such as the 2008 recession (which led to concerns about rising debt and job scarcity) and the COVID-19 pandemic. Most recently, after the Supreme Court decision against President Biden’s widespread debt cancellation plan, the federal government introduced a new plan, along with changes to existing plans, targeting even more eligible borrowers and offering the lowest monthly payments yet.
Recent changes to individual IDR plans
IDR Comparison Chart
|
Applications for SAVE, other IDR plans, and loan consolidation are available on http://studentaid.gov. You can also submit a PDF application to your loan servicer by uploading it to your servicer’s website, or mailing it to them. Expect a delay in processing times. The Education Department recommends checking its website for updates – there is no processing time estimate available. |
|
Plan |
Monthly Payments |
Repayment Period |
Status |
|
SAVE (formerly REPAYE) |
- 5% of discretionary income for Undergraduate Loans
- 10% of discretionary income for Graduate Loans
- Weighted average for borrowers who have both
|
- 10 years for low-balance borrowers (less than $12,000)
- 20 years for only undergraduate loans
- 25 years for any Graduate Loans
|
Replaced REPAYE |
|
Income-Based Repayment (IBR) |
- 10-15% of your discretionary income (and your spouse’s if filing jointly)
- Never more than federal 10-year Standard Repayment Plan amount
|
20-25 years, depending on when you become a new borrower |
Remains available but borrowers cannot select plan after 60 payments on REPAYE that occur on/after July 1, 2024 |
|
Income-Contingent Repayment (ICR) |
The lesser of the following: - 20% of your discretionary income or
- What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
|
25 years |
Not accepting enrollments for current students; only available to future borrowers with consolidated Parent PLUS loans |
|
Pay as You Earn (PAYE) |
- 10% of your discretionary income (and your spouse’s if filing jointly)
- Never more than federal 10-year Standard Repayment Plan amount
|
20 years |
Not accepting new enrollments |
The new Saving on a Valuable Education (SAVE) plan
Formerly known as REPAYE (Revised Pay As You Earn), the new SAVE plan is designed to provide an even better repayment and forgiveness option for many borrowers with federal student loans. There are a few unique factors that elevate SAVE above other options, including a shorter forgiveness timeline, lower monthly payments, and the bonus of interest subsidies for eligible borrowers. This means that if your monthly payment doesn’t cover the accruing interest on your loans, the government will pick up the tab for a portion of that interest. This could be a great benefit for borrowers with high-interest loans. Read more about SAVE in our comprehensive guide.
Advantages and disadvantages of IDR plan changes
As several adjustments have been implemented to the various IDR plans, it’s imperative to fully understand the potential impact on your eligibility, payment reduction rate, and other factors. Below are some of the advantages and disadvantages of the recent changes in IDR plans, particularly SAVE:
Advantages
- Reduced monthly payments: The SAVE Plan significantly reduces monthly payments by increasing the income exemption from 150% to 225% of the poverty line, and further offering a halved monthly payment amount starting in July 2024.
- Income thresholds: With SAVE, your monthly loan payment could be zero under certain conditions, such as if you are a single borrower earning $32,800 or less or a family of four earning $67,500 or less (higher amounts in Alaska and Hawaii). Borrowers earning more than these thresholds will save at least $1,000 per year compared to current income-driven repayment plans.
- No interest accrual: If you make your monthly payment, your loan balance won’t grow due to unpaid interest. For example, if $50 in interest accumulates each month and you have a $30 payment, the remaining $20 would not be charged.
- Excludes spousal income: The SAVE Plan excludes spousal income for borrowers who are married and file their taxes separately.
Disadvantages
- Long-term repayment: While reduced monthly payments can be a relief, it also means you’ll be repaying your loans over a longer period. This could result in paying more in interest over time.
- Impact on credit: Missed payments may negatively impact your credit score, so staying on top of your monthly bills and obligations is important to protect your creditworthiness.
- Higher-income borrowers: If you are a higher-income borrower, you may not qualify for the same level of support under certain IDR plans. Consider alternative repayment strategies and weigh your options accordingly.
Navigating IDR updates
The recent changes to IDR plans have made them more accessible and beneficial for many borrowers. Whether you want to lower your monthly payments or explore loan forgiveness options, IDR plans offer a path to financial relief.
Be sure to regularly visit the Federal Student Aid website to stay informed about the latest updates to IDR plans and get detailed information about all federal student loan repayment options. Read our step-by-step guidance on how to apply for an Income-Driven Repayment plan and get student loan forgiveness, and book a consultation with one of our student loan specialists to discuss your options and make informed decisions about your student loan repayment. Your financial future is worth the investment of your time and effort.
IDR will grow with you
Don’t let the complexities of possible income limits deter you from exploring the benefits of IDR. Contact our team of experts for a comprehensive consultation and let us help you make informed decisions about your student loan repayment choices, tailored to your unique financial circumstances. Make the most of your educational investment by navigating the world of student loans with confidence.
