Urgent Update: Student Loan Payments Resumption & The New SAVE Plans
Dear valued clients and members,
The long pause on student loan payments and the suspension of interest accumulation since March 2020 due to the COVID-19 pandemic is drawing to a close. Interest on student loans will begin accruing from September 1st, 2023, and monthly payments are set to resume in October 2023. There are no anticipated extensions.
Key Actions to Take:
- Update Your Contact Information: Ensure your contact details are current on studentaid.gov and with your loan servicer.
- Explore the SAVE Plans: These new income-driven repayment plans can significantly reduce your monthly payment. Dive deep into your options using the Loan Simulator | Federal Student Aid. Options include fastest payoff, lowest monthly payment, and lowest total payment.
- AutoPay Benefits: Secure a 0.25% reduction on your interest rate by enrolling in autopay via your loan servicer’s portal.
- Determine Payment Amount: Some loan servicers already have updated payment details available. Check your loan servicer’s website.
- Loan Forgiveness Programs: Confirm if you’re eligible for any forgiveness programs here.
Spotlight on the SAVE Plans:
SAVE Plans offer a more lenient approach to student loan repayments:
- Exclusions: Parent loans and private loans are not eligible.
- Duration: 20 years for undergraduate loans (unless changes in July 2024 apply) and 25 years for graduate loans, as opposed to the standard 10-year repayment plan.
Immediate Benefits:
- Increased income exclusion from payments (based on family size). For instance, an individual can exclude up to $32,805 from income calculations.
- For those making minimum monthly payments, unpaid interest will not accrue.
- Married borrowers filing taxes separately can exclude their spouse’s income and the spouse from the family size calculation.
Changes from July 2024:
- Reduced payments from 10% to 5% of remaining income for undergraduate loans.
- Special forgiveness conditions for borrowers with original balances of $12,000 or less.
Special Note: Borrowers are in a “on-ramp transition period” until September 2024, during which payments are due, but any missed payments will not negatively affect credit scores. All borrowers, irrespective of their repayment status, can apply for the new SAVE plan.
Tax Implications: Starting 1/1/2026, any student loan balances forgiven by the Federal government become taxable income. This varies by state.
The Bigger Picture: With these generous repayment plans, the Congressional Budget Office (CBO) makes several projections, including a rise in borrowers opting for income-driven plans, escalating college costs, and an increase in students borrowing.
Should You Opt for SAVE? The decision can be intricate. Factors include projected income, family size, potential deductions, loan interest rates, marital status, and more. However, the following groups should especially consider it:
- Those on other income-driven repayment plans.
- Those currently in default or forbearance.
- Those struggling with the 10-year standard repayment plan.
- Individuals with undergraduate loans, as their SAVE plans are more advantageous than graduate ones.
In conclusion, the landscape of student loans is evolving. We’re here to support and guide you through these changes.
If you need any help regarding these issues Corridor Consulting would love to help, please schedule a discovery session here, and we’ll be able to address these issues and much more! We’re looking forward to opening many more doors for you!
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This article is not professional tax or legal advice for your specific circumstances. Consult with your professional adviser to better understand how these items may impact you, or how they’ve changed
