Why These 2 Student Loan Repayment Plans Have Reopened
The U.S. Department of Education has reopened two student loan repayment plans, the Pay as You Earn (PAYE) and Income-Contingent Repayment (ICR), while the Saving on a Valuable Education (SAVE) plan remains tied up in legal battles. The SAVE plan offers lower monthly payments than any other federal student loan repayment plan and leads to quicker debt erasure for those with small balances.
The two reopened plans come with pros and cons. For borrowers who are in the SAVE program’s interest-free forbearance, not having to make payments may be a relief, but they will not receive credit for the time spent in the program. Borrowers who want to earn credit toward debt cancellation under the Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) plan should consider switching to one of the reopened plans.
The Pay as You Earn (PAYE) plan is considered a good option for those who are not seeking or eligible for loan forgiveness and can afford the monthly payments. Under this plan, payments are fixed and borrowers typically make payments for up to 20 years.
The Income-Contingent Repayment (ICR) plan offers $0 payments for single individuals making up to $15,060, or $31,200 for a family of four, and above these amounts, some borrowers’ bills are set at 20% of their income.
Borrowers can use online tools to determine their monthly bill under different plans and should consider their financial situation and goals when choosing a repayment plan. The U.S. Department of Education continues to defend its authority to cut payments for borrowers with high debts and low incomes through the SAVE plan, which remains on hold in court. In the meantime, the department is making more options available to low-income borrowers, including those in the public service, to make the best choices for their financial situation.
