Navigating the Shift from the SAVE Plan: Expert Advice for Students Loans Borrowers

As hundreds of thousands of students and families across the US are impacted by the impending shift from the SAVE Plan to a new repayment plan, questions and concerns are growing about the potential costs and implications of these changes.

Starting July 1, more than 7 million borrowers on the now-defunct SAVE plan will begin hearing from their loan servicer about switching to a new repayment plan. Some of these plans could increase borrower's monthly bills by a few hundred dollars. This change could have a significant impact on the financial stability of many families who were previously using the SAVE Plan's more manageable payment structure.

Federal student loan borrowers who relied on the SAVE Plan now face a big question: what comes next? With gas prices soaring, healthcare costs on the rise, and potential changes to the loan repayment structure on the horizon, it's more essential than ever to understand the best options available and make informed decisions about their financial future.

"This is like the perfect storm," said Betsy Mayotte, the President of the Institute of Student Loan Advisors, a nonprofit that offers free student loan advice. "Gas prices are huge, healthcare costs have gone way up and now their student loan payment is likely at a much higher payment than they've had in the past." Betsy Mayotte, a seasoned industry expert with over 25 years of experience, is dedicated to helping borrowers navigate the complex landscape and make informed decisions about their student loans.

To put into perspective, a borrower with a family of four earning $120,000 a year and owing $60,000 could see monthly payments rise from about $430 under the former SAVE Plan to roughly $630 to $850 under the Income-based Repayment plan. This change could leave many families struggling to make ends meet, highlighting the need for timely guidance and support.

According to Mayotte, borrowers should prioritize finding a plan that allows them to pay the least amount out of their own pocket in the long run. While this may seem counterintuitive, she emphasizes that the goal is to pay off the loan balance as efficiently as possible, reducing the overall burden of interest payments. To accomplish this, Mayotte recommends choosing a plan that allows for higher monthly payments and reviewing options periodically as income changes.

Mayotte stresses that finding the right repayment option can be challenging, particularly for those who are facing a significant increase in loan payments. Borrowers who qualify for forgiveness, such as through the Public Service Loan Forgiveness (PSLF) or an income-driven plan, will want to seek the lowest possible income-driven plan. For those with older loans that are not direct loans, consolidation is unlikely to change their plans.

"There's a lot of confusion. People are angry, they're anxious," Mayotte said. Mayotte has encountered misleading messaging online, which has led her to advise borrowers to be cautious and do their research thoroughly before making any final decisions. "Unless you have really old loans that aren't direct loans, like really, really old, consolidation is not going to change the plans you're eligible for. In fact, it will take away from you plans that you're currently eligible for, and even worse, if you've been pursuing forgiveness that's baked into the income-driven plans, consolidation will reset your progress to zero," she warns.

For anyone worried they can't afford any of the repayment options, Mayotte recommends making the lowest payment you possibly can to do anything to avoid defaulting on your loans. Defaulting on your loans can trigger wage garnishment, steep collection costs, and a major ding to your credit. Instead of taking a hasty decision, Mayotte suggests seeking guidance from a reputable source, such as the Federal Student Aid's office or a trusted counselor.

One habit Mayotte recommends to all borrowers is to review their repayment options once a year as their income changes. "One of the biggest long-term errors that I see consumers make: they need the lowest payment they can get, so they pick that plan and they set it and forget it. And then 20 years down the road, they look and they have not hardly paid the loan down at all," she remarks.

With these insights, borrowers can make more informed decisions about their financial future and navigate the complexities of the new repayment plans. By prioritizing timely guidance and support, families can avoid costly mistakes and ensure a stronger financial future.