Federal student loan borrowers face a grim reality as they search for a new repayment plan.
Some 7.5 million borrowers on the SAVE repayment plan - which a federal appeals court struck down in March - will receive emails from their student loan servicers by December telling them they have 90 days to pick a new plan.
Roughly half of SAVE borrowers will face monthly payment increases of at least $500, according to a July analysis from nonprofit Student Debt Crisis Center. The median payment in the SAVE plan, which officially ended on July 1, was $110, the center said.
“I am trying to determine what my new loan payment will be and in no universe can I afford this,” lamented one borrower, shellesq55, Thursday on Reddit.
“So what are we doing here? To be clear, I have no issue with paying back my debt. I take issue with how crippling this has become.”
More than 1.75 million borrowers have chosen new repayment plans as of Friday, Department of Education spokesperson Ellen Keast told The Independent in an email.
Farewell, low payments
SAVE was a financial godsend for many borrowers, but those days are over, according to experts. For some borrowers who paid $0 a month in SAVE, their new payment will be a shock.
“The new median estimated payment is $560 per month, a steep increase for the 27 percent of respondents who reported a $0 monthly payment on SAVE,” the center said.
The Department of Education will put borrowers who miss their 90-day deadline into the Standard Repayment Plan, where median monthly payments are $674, Student Debt Crisis Center notes.
Picking a plan that works for you
Borrowers can choose from eight federal repayment plans - four with pre-determined payments for up to 30 years and four “income-driven” plans with payments that change based on a borrower’s income.
“There are other income-driven repayment (IDR) plans available, but for most borrowers, they do not offer a monthly payment as low as what SAVE offered,” Matt Elston, a student loan coach manager at student loan consultancy Tuition.io, wrote in an email to The Independent.
Borrowers who choose an income-driven plan trade affordable payments for extended repayment lengths that rack up more interest over time, Elston said.
If a borrower feels stuck and doesn’t know which plan to pick, they need to clarify their goal, he said.
“Do they need the lowest monthly payment possible, or do they want to pay off their loans as fast as possible?” Elston said.
If there’s any good news, it’s that a version of one of the SAVE plan’s beneficial features - waiving unpaid interest if the borrower makes their monthly payments - lives on in the repayment assistance plan (RAP), certified financial planner Eddy Jurgielewicz told The Independent in an email.
“The new RAP plan also has an interest subsidy that will cover the unpaid interest for those borrowers making required payments too small to cover the full interest amount,” Jurgielewicz said.
While helpful, the interest subsidy is a small salve for the millions of borrowers facing a big spike in their monthly payment.
“Anyone else in a complete state of panic?” shellesq55 also asked in their Reddit post. “This is absolutely ridiculous.”
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