Federal Student Loan Borrowers Face Deadline for New Repayment Plan

Federal student loan borrowers who participated in the discontinued Saving on a Valuable Education (SAVE) repayment plan must meet upcoming deadlines to choose a new plan, or they will be automatically assigned to a different option. The first set of deadlines occurs on September 29, marking 90 days since federal loan servicers began notifying borrowers on July 1. These dates are not uniform nationwide because borrowers receive notifications at different times, with a 90-day selection period from the date of their specific notice.

SAVE Program Discontinuation

SAVE was terminated following a federal court order earlier this year. The U.S. Department of Education mandates that borrowers failing to select a new repayment plan will automatically move to either the Standard Repayment Plan or the new Tiered Standard Plan. Other repayment options are available for those who actively choose them.

Understanding the Deadline

The immediate deadline specifically impacts SAVE borrowers who received notices in early July. For instance, those who got their notification on July 1 must decide on their repayment plan by September 29. Those notified later will face deadlines in the coming months. Loan servicers like MOHELA and Edfinancial are contacting borrowers in scheduled waves, each with a 90-day decision window from their notice date.

Kaydee Ambas from Earnest advises borrowers to check their servicer account, verify their deadline, and utilize the federal Loan Simulator to evaluate different repayment plans and their costs.

Consequences of Missing the Deadline

Failing to act by the deadline means borrowers will transition from SAVE to either the Standard Repayment Plan or the Tiered Standard Plan. The Standard Plan offers fixed payments over a decade, while the Tiered Standard Plan provides fixed terms ranging from 10 to 25 years, depending on the owed amount.

Repayment Options

John Wittelsberger, a financial planner at Armstrong, Fleming & Moore, explains that the Standard Plan is suitable for those who can handle bigger payments and prefer a defined end date. He notes that higher earners might benefit from this plan by paying less in overall interest.

The Repayment Assistance Plan (RAP) became available on July 1. It bases payments on adjusted gross income and the number of dependents, offering flexibility for those facing financial changes. Payments under RAP range from $10 monthly up to 10% of income, adjusted for dependents, and can extend to 30 years.

Additionally, borrowers might qualify for Income-Based Repayment (IBR). This plan often requires payments of 10% to 15% of discretionary income, with the remaining balance potentially forgiven after 20 to 25 years of qualifying payments.

Federal Student Aid advises borrowers to consult their StudentAid.gov dashboard to confirm loan details, as these factors determine available repayment plans.