SLA Newsletter 9: Student Loan Forgiveness Blocked + SAVE
Hi,
I hope you had a nice fourth of July!
This summer is really heating up and so are all the changes with student loans (forgive me for the dad joke).
Student Loan Forgiveness Blocked
Last Friday the Supreme Court blocked the 10-20k of student loan forgiveness. I never believed this forgiveness was going to happen with the current SCOTUS 6-3 conservative majority. It's definitely a blow to the 20+ million who had already applied. If you'd like to understand the details, here's the article I wrote which ran just minutes after the SCOTUS decision.
Please note: This decision does not impact public service loan forgiveness (PSLF). The 10-20k and PSLF are totally separate.
Immediately after the SCOTUS Friday ruling, President Biden and Education Secretary Cardona came out with more details on how they will continue to use additional measures to issue student loan forgiveness. They will try to employ the Higher Education Act to grant student loan forgiveness.
Reading the tea leaves, student loan and legal experts are saying its dead in the water. It really doesn't stand more of a chance than this most recent legal case with student loan forgiveness. I'll continue to provide updates as we learn more.
NEW REPAYE is now SAVE
The other hot item discussed last Friday was New REPAYE. New REPAYE is now called Saving on a Valuable Education or SAVE. We had previously seen details on this new repayment plan back in January. But no further information had been provided since then.
Implementation for borrowers to enroll in this plan was set for sometime in 2024. Now, they are pushing to have this available by the time payments start in October.
Most of the changes you need to be aware of are in this post I wrote all the back in January. Here's a quick summary.
-Those in REPAYE will automatically be moved to SAVE by the time repayment begins this year.
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-SAVE allows for the exclusion of spousal income if you file taxes married filing separately. In the past, only IBR or PAYE allowed for this.
-SAVE will calculate payments at 5% for undergrad loans and 10% for graduate and professional loans. If you have a mix, a weighted average will be calculated to determine the percentage you’ll pay on a monthly basis.
-SAVE will increase your income exemption from 150X to 225X the federal poverty line. So for a household of two you'll deduct $44,370 instead of $29,580. This means lower payments.
-Government interest subsidy will now cover ALL unpaid interest. In the past, old REPAYE generally subsidized 1/2 of your unpaid interest. Now your loans in SAVE would never grow. The balance would only decrease as you chip away at the principle.
-PAYE and ICR will be phased out July 1, 2024. This is a downside for those of you who will make more than you owe in the future because of the payment cap in PAYE. IBR will still be an option and provides a payment ceiling as well. ICR will only be available for parent borrowers.
-After 60 payments in SAVE you cannot switch to IBR or PAYE. A consideration for those in long residencies/fellowships.
If you're interested in the SAVE program, it is probably the best option for you if you are single or the sole earner in your household and make less than you owe in student debt. If you are married to an earner and/or make more than you owe, you might wanna stick with IBR or PAYE instead of SAVE.
Okay, I think that's enough for now on the SAVE plan. We'll have more scenarios and a comprehensive write up later on.
If you need help navigating the process of SAVE vs PAYE/IBR, we've done hundreds of meetings this year helping borrowers just like you decide which plan is optimal to get the best deal on your loans. And, if it's been a couple of years since we met and your plan needs a triage, you get $100 off your return consult.
As always, thanks for what you do! And, let us know if you have any questions.
-Andrew
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