Paying student loans isn’t fun — who doesn’t want to pay less? The promising news is that you just might.
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Starting July 1 of this year, a new income-driven repayment plan for federal student loans will be set in place, and experts quoted in CNBC’s article on the subject say it could result in a dramatic drop in payments for some student loan borrowers. President Biden put in motion in summer of 2023 the Saving on a Valuable Education (SAVE) plan, which he claims can result in the most affordable payments for federal student loans.
Think of the SAVE plan as the replacement of the Revised Pay As You Earn (REPAYE) plan from the U.S. Department of Education. Under the SAVE plan, you will make monthly payments based on a percentage of your discretionary income. You can also qualify for student loan forgiveness after meeting requirements for a certain period of time, say 20 to 25 years.
How could it lower your payments more drastically than other income-driven payment plans? For one, the SAVE plan raises your income that’s exempted, up to 225% of the poverty line, compared to only 150% that was exempted under the old REPAYE plan.
For example, if you earn about $45,000 a month, you’ll need to make around $101 in payments under the SAVE plan, compared to $228 for the former REPAYE plan. Even higher income earners can see a dramatic drop in their payments. Say you earn $125,000 — you could see $473 in savings by paying only $380 per month, instead of $853 with the now defunct REPAYE plan.
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If you only took out $12,000 or less in federal student loans, you could also qualify for loan forgiveness in 10 years with the SAVE plan. Already on an income-driven repayment plan? Any of those payments will count if you end up being on the SAVE plan.
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This article originally appeared on GOBankingRates.com: Your Student Loan Bill Could Drop by as Much as $473 Very Soon — Here’s Why
