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New Chances to Reduce Student Loan Payments

Don’t miss the April 30 deadline

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If you completed a college degree at some point, congratulations. But you could have one more challenge if you took out student loans to get that degree. There’s an important deadline on April 30, and if you don’t act before then, you may lose out on lower loan payments — and, possibly, loan forgiveness. Here is what to know.

The Saving on a Valuable Education (SAVE) program should be of special interest to those who borrowed less than $12,000 for their education. “It doesn’t matter what your total debt is right now,” says Natalia Abrams, president and founder of the Student Debt Crisis Center. “If you originally borrowed $12,000 or less, have been in income-based repayment for 10 or more years, and have signed up for the SAVE program, all of your debt could be erased starting right now.”

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Most student loans can be consolidated into the SAVE program, which replaces the earlier Revised Pay as You Earn (REPAYE) plan. Borrowers on the REPAYE plan automatically get enrolled in the new SAVE plan.

SAVE is an income-driven repayment plan. That means your payments depend on your discretionary income, which is the difference between your annual income and 225 percent of the poverty guideline. For people living in the 48 contiguous states, the poverty line for a single person is $15,060, and 225 percent of that is $33,885.

You subtract the amount that’s 225 percent of the federal poverty level from your adjusted gross income, which is your gross income minus certain above-the-line deductions, such as contributions to retirement plans or health savings accounts. The remaining amount is the income subject to the SAVE program’s payment plan.

Let’s say there are two people in your family, and you’re paying 6.5 percent interest on your loan for undergraduate school. Your discretionary income is $15,630. Under current law, you’d owe 10 percent of $15,630 each year, or $1,563, and your monthly payment would be $130. Under the new SAVE rules, you’d owe 5 percent of your discretionary income, meaning your payment would fall by half, to $65 a month.

The SAVE program has two other benefits for borrowers. The first is that the government would subsidize any interest owed beyond the payment. This would prevent the loan balance from increasing during the repayment period.

The SAVE program allows borrowers with several different loans to consolidate them into one larger loan, typically with a lower payment than your existing loans. Under SAVE, borrowers can start their repayment clock from the date of their first payment. Depending on the type of loan you have (and your current job), your loan could be repaid or forgiven much more rapidly than under previous rules.

The catch to it all: You must apply to the SAVE program by April 30. If you do, you will get a one-time payment adjustment in July.

Other options

You may have other options for reducing or eliminating your student loans. But don’t count on sweeping loan forgiveness. The general sense from student loan experts is that while the process is ongoing, you probably shouldn’t be counting it. “I’m often asked if there will be another full-scale attempt at student loan forgiveness,” says Stacey MacPhetres, senior director of education finance at Bright Horizons. “It doesn’t feel super likely.” Still, you may have other options that are worth exploring.

Public Service Loan Forgiveness

This is a long-standing program designed for those who work for the government (federal, state or local) or for a qualifying nonprofit organization. If you have federal Direct Loans (or consolidate into one) and you make 120 qualifying monthly payments while working for an eligible employer, you could get the remainder of your student loan balance wiped clean.

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Paused payments from the COVID-19 years count toward that 10-year total, by the way, so you are potentially looking at a few extra years of credit. To research more about PSLF eligibility, click here.

Teacher Loan Forgiveness

This is not quite as generous but certainly worth mentioning. The program, which requires five complete and consecutive years of teaching at a low-income school, makes you eligible for up to $17,500 of forgiveness related to your federal Direct or Stafford loans.

Discharge programs

In addition to forgiveness programs, there are also what are called discharges, which amount to the same thing — your remaining balance going away. “This is when something bad happens to you, such as disability or schools closing before you were able to finish, or if a school defrauded you with information like job placement rates, and so on,” says Betsy Mayotte, president and founder of the Institute of Student Loan Advisors (TISLA).

As for disability, you potentially qualify for student debt cancellation if you have what’s called a “total and permanent disability” that has left you unable to substantially work for a period of at least 60 months — as documented by the Social Security Administration, the Department of Veterans Affairs or a licensed medical professional. After that discharge, there is typically a three-year monitoring period.

Other programs

While those are some of the main student debt forgiveness programs, they are certainly not the only ones. In fact, there are “well over 100,” says Mayotte.

Many of these are profession-based — as incentives for health care workers, for instance — or location-oriented, such as a state trying to encourage you to move there. Some even address private student loans as well as federal loans. For a comprehensive roundup, check out this TISLA resource.

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Cautions Mayotte: “Many of them are state-based, and state budgets are very volatile, so make sure the program still exists.”

A few other things borrowers should know: If you are in default on loan payments, which can affect eligibility for forgiveness programs, you’re in luck. The so-called Fresh Start initiative can help you get back on track.

This is a one-time, temporary program to get you out of default and into repayment, and to have the default wiped from your credit record. Learn more here

“Since the pandemic pause, only 60 percent of borrowers went back into repayment,” notes MacPhetres. “But right now there is a lot of leniency, and a grace period. This program helps you get back into repayment with a clean slate.”

Another federal initiative, called the “payment count adjustment,” is affecting loan forgiveness time lines. This is a measure meant to make up for past failures in the administration of student loans, and essentially puts you further along the path to debt cancellation.

“This is something that is very important for older Americans,” says Abrams of the Student Debt Crisis Center. “If you have been in repayment for 20 years or more, this account adjustment could mean that you see all of your remaining debt canceled.”

If your loan isn’t held by the Education Department — perhaps you have a Federal Family Education Loan or a Perkins loan — then you need to consolidate into a federal Direct loan by April 30 to qualify for this account adjustment.

Armed with all of this information, hopefully you will be able to reduce your student loan debt. 

“No one should ever borrow assuming forgiveness,” warns Mayotte. “But that being said, the stuff the administration is doing to help vulnerable borrowers is like nothing I’ve ever seen. Right now, everyone is hyper-focused on forgiveness.”

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