Student loan debt can be overwhelming, but Income-Driven Repayment (IDR) plans offer not only manageable payment strategies, but also a potential path to forgiveness.
A new IDR plan, named Saving on a Valuable Education (SAVE), could offer borrowers the simplest path to forgiveness, including the possibility of forgiveness in half the time or monthly payments that could be cut in half.
While current court challenges have placed the new SAVE plan on hold, read on to learn more about the proposed plan and the benefits of IDR plans below.
What is IDR?
IDR plans adjust your monthly payments based on your income, location, and family size, often resulting in lower payments (and subsequently, a longer repayment period).
These plans cap your monthly payments at a percentage of your discretionary income, ensuring that no one owes more than they can comfortably pay, no matter how high their loan balance might be, or how low their income. Historically, IDR plans offered loan forgiveness after 20 or 25 years of qualifying payments, depending on your plan and loan type.
What is SAVE?
The SAVE plan, introduced as a replacement for the previous REPAYE plan, aims to offer more manageable terms for borrowers. It calculates payments based on a more generous (as in, borrower-friendly) calculation of your discretionary income, and requires lower monthly payments.
This results in a lower monthly payment than other IDR plans, making it an attractive option for many borrowers. If the proposed changes on the SAVE plan can proceed, they would also reduce the monthly payment amount for undergraduate loans from 10% to 5% of discretionary income.
Due to legal challenges, the new SAVE plan is currently on hold, for the latest updates visit studentaid.gov.
How Do You Get Student Loan Forgiveness Faster?
One of the most compelling features of the proposed SAVE plan is its provision for forgiveness for low-balance borrowers, who could reach potential forgiveness in 10 years. If your original loan balance is $12,000 or less, you could receive forgiveness after just 10 years of qualifying payments, rather than the typical 20 or 25 years required by other IDR plans.
Balances that are close to this number would also be eligible for early forgiveness: For every additional $1,000, the repayment term increases by one year. So, a borrower with a $13,000 balance can be eligible for forgiveness in 11 years; a borrower with $14,000 in 12 years, and so forth.
This accelerated forgiveness could be a significant relief for borrowers with smaller loan amounts, rather than stretching out the payments over decades.
Understanding the eligibility requirements for your repayment plan and staying on top of your payments is important. Ensure you meet all criteria to maximize the benefits of your IDR plan. Reach out for guidance with your student loan options if you have questions on how to reach student loan forgiveness.
Forgiveness is Within Reach
Enrolling in the right IDR plan can help you reduce your monthly payments and potentially achieve forgiveness sooner. With careful planning and a thorough understanding of the programs available, you can navigate the complexities of student loan repayment and get that much closer to financial freedom.
Article and permission to publish here provided by Biswajit Rakshit. Originally written for Supply Chain Game Changer and published on August 16, 2024.
Cover image by 3D Animation Production Company from Pixabay