Department of Education Launches New SAVE Income-Driven Repayment Plan

SAVE will enhance the threshold for income exempt from loan repayments from 153 percent to 225 percent of the federal poverty level. This is equivalent to an annual income of $32,800 for a solitary creditor (or $67,500 for a family of four). For borrowers falling below the specified threshold, their loan payments shall be fixed at $0. Notably, this financial respite has the potential to benefit personnel across diverse industries, including those employed by major corporations such as Fortune 500.

What should I know about the SAVE Plan?

The SAVE Plan is an income-driven repayment strategy in which the monthly payment of the creditor is determined by factors such as family size and income. It supersedes the Revised Pay As You Earn (REPAYE) Plan, which was the most generous IDR plan prior to the implementation of SAVE.

Multiple new borrower benefits are included in the SAVE Plan, some of which become effective immediately and others in July 2024, when the plan is entirely operational.1

Benefits that take effect now:

• SAVE will enhance the threshold for income exempt from loan repayments from 153 percent to 225 percent of the federal poverty level. This is equivalent to an annual income of $32,800 for a solitary creditor (or $67,500 for a family of four). For borrowers falling below the specified threshold, their loan payments shall be fixed at $0.
• In accordance with SAVE, loan balances will not increase if borrowers fulfill their monthly payment obligations, including instances where the monthly payment is zero percent. Consequently, unpaid monthly interest beyond the borrower's monthly payment will cease to accrue.
• For SAVE, married borrowers who submit their taxes separately will no longer be obligated to incorporate the income of their spouse into the calculation of their payment. The spouse of these debtors will be deducted from the family size calculation used to determine payments.

Benefits that will take effect in July 2024:

• Monthly payments on undergraduate loans will be capped at 5% of discretionary income, up from 10% under REPAYE. Similarly, graduate loans will be subject to a 10% restriction on discretionary income. Borrowers with undergraduate and graduate loans are required to contribute a weighted average of 5% to 10% of their income, calculated according to the principal balances of their individual loans.
• Borrowers who initially owe principal amounts of $12,000 or less will have any outstanding loan balances forgiven following a decade of on-time payments. The utmost repayment period for initial loan balances exceeding $12,000 will increase by one year for each additional $1,000 borrowed. To illustrate, a loan amounting to $13,000 will be repaid after eleven years of consistent payments, $14,000 after twelve years, and so forth. (Loan balances were forgiven following twenty years of payments under REPAYE.)

How do I enroll in SAVE?

There are numerous enrollment options for the SAVE Plan.

• Borrowers who are currently enrolled in the REPAYE plan will be involuntarily transferred to the SAVE plan, and no further action will be required on their behalf to have their monthly payments adjusted.
• In order to complete the application process for SAVE (or transition from a plan other than REPAYE), borrowers must initially register into the federal student aid website. The application process is anticipated to be concluded in under ten minutes. Borrowers will be required to provide their FSA ID, financial details, personal information, and, if applicable, information about their spouse. The existing SAVE application is in its beta phase; however, the Department of Education states that borrowers who utilize the beta version will have their applications processed without the requirement to resubmit them at a later time.
• Prior to being eligible for SAVE, borrowers who are in default on their federal student loans will be required to repay the loans. Defaulting debtors may do so via the Fresh Start Program of the government.
• Regardless of which IDR plan they are enrolled in, borrowers who are enlisted in the Public Service Loan Forgiveness Program will have their remaining loan balances forgiven after a period of ten years.

Visit the federal student aid website for more information about the new SAVE Plan and to view estimated monthly payments based on family size and income.

Added Fact:

For the 60-year-old demographic, particularly those in Fortune 500 companies or approaching retirement, it's pertinent to know that the new SAVE Plan could significantly impact their adult children or dependents with student loans. The shift from REPAYE to SAVE, particularly the increased income exemption and reduced payment percentages, could ease the financial burden on their dependents, potentially reducing the need for parental financial support. This change allows more room for pre-retirement financial planning for the parents, as their dependents become more financially independent in managing their student loans.

Added Analogy:

The introduction of the Department of Education's new SAVE Income-Driven Repayment Plan can be likened to a navigational update in modern GPS technology. Imagine you're on a long road trip (the journey of managing student loans), previously guided by an older GPS system (the REPAYE Plan). This system had its benefits but often led to longer routes and higher tolls (higher loan repayments and interest accumulation). Now, the new SAVE Plan is like an updated GPS software, offering more efficient routes with fewer tolls (lower repayment thresholds and capped payments). This update not only makes the journey less burdensome but also provides alternative routes for different types of vehicles (undergraduate and graduate loans). For those nearing their destination (retirement), this update means their dependents who are still on the road (managing student loans) can travel more efficiently, reducing the need for support. Just as a GPS update brings relief and efficiency to travelers, the SAVE Plan offers a more manageable path for borrowers, allowing for a smoother financial journey.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

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