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Why some student loan payments are being paused in July
Some student loan borrowers will receive relief next month as the Department of Education readjusts the formula for determining payment amounts.
Next month, the US Department of Education will adjust the formula to determine the payment amounts for borrowers enrolled in the SAVE plan, an income-based repayment plan expanded under the Biden Adminstration. The changes made to the program will lower student loan payments for millions of borrowers. As this process gets underway, the Department of Education will implement a one-month forbearance program as they adjust the payments. This means that those enrolled in the program can skip their July payment, and the interest tacked onto the loan will not accumulate.
How will the changes alter average payments for borrowers?
According to the Department of Education, 7.7 million borrowers are now enrolled in the SAVE Plan, which replaced the Revised Pay As You Earn (REPAYE). Of those, 4.3 million have a $0 payment. The agency actively reaches out to borrowers eligible for early relief but not currently enrolled to encourage them to sign up.
The SAVE Plan increased the income exemption from 150% to 225% of the poverty line based on family size. The thresholds will be higher in Hawaii and Alaska. Borrowers must make monthly payments equivalent to 10% of their discretionary income, the amount of their adjusted gross income above the exemption. However, that will be reduced to just 5% in July, cutting monthly payments in half.
Depending on their original loan balance, those with graduate and undergraduate loans will pay between 5% and 10% of their discretionary income.
Who qualifies and how to apply?
The application process only takes about 10 minutes. The government’s new plan for student loan repayment is income-driven, and the newly launched beta site will allow borrowers to start submitting applications for the program.
For borrowers currently registered under the REPAYE program, the transition to the SAVE program will happen automatically.
If you’re not on one currently, you can apply for an IDR and select REPAYE if you want to enroll in the SAVE plan.