Student loan bills have officially resumed for 28 million borrowers. The unprecedented 3-year pause on student loan repayment is over as of October 1. As part of an initiative to help borrowers manage student loan debt, the Department of Education has launched the SAVE Repayment Plan. The plan is expected to save borrowers an average of $1,000 a year on outstanding student loan debt.
Sarah Foster, an Analyst for Bankrate, says for many this could be a cheaper option, especially if you are cash-strapped. The SAVE plan will determine payment amounts by your income rather than the loan size.
Meaning, those who make less than $32,800 per year, or $67,500 for a family of four, will not owe loan payments.
The plan also eliminates 100% of the remaining interest on loans after a scheduled payment is made.
“The best way I can explain that is say if you were paying $30 a month on your student loans and you’re charged $50 an interest a month, that extra $20 wouldn’t be capitalized, it wouldn’t be charged. It would be completely canceled under this new safe plan,” says Foster.
And there’s more. For those who owe less than $12,000, whatever isn’t paid in 10 years would be waived.
Foster says what is key is gaining an understanding of the program’s options, and knowing your income and debt level.
“I think a good rule of thumb is if your student loan balance is greater than your annual income, it might be a good idea to just sign up and kind of see how it works for you. But on the other hand, if your income is high enough and because of the way that the Department of Education calculates those monthly payments based on your income, you might actually end up paying less monthly if you were enrolled in just the standard repayment plan,” says Foster.
You do have to sign up for the program to reap the benefits and you can do that by going to www.studentaid.gov.
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