Two Student Loan Repayment Applications Are Opening Next Week—Are They Right for You?

Key Takeaways

• Federal student loan borrowers enrolled in the Saving for a Valuable Education (SAVE) plan will be able to apply for two previously closed repayment plans starting in mid-December.
• Currently, SAVE plan borrowers are in forbearance and cannot make payments toward loan forgiveness. Borrowers who qualify for the Public Service Loan Forgiveness (PSLF) plan may want to leave forbearance to work toward forgiveness.
• These two revived plans offer borrowers more options and more generous monthly payments than a standard repayment plan or the Income-Based Repayment (IBR) plan.
• SAVE borrowers have been held in limbo since July 2024, and the Department of Education expects that lawsuit to last at least five more months. Some may want to apply for a different repayment plan to decrease their uncertainty about the SAVE plan.

The Department of Education is scheduled to open applications for two older repayment plans next week to provide more options for borrowers stuck in limbo.

As ongoing lawsuits have frozen the department’s Saving for a Valuable Education (SAVE) plan, millions of borrowers under the repayment plan were placed into forbearance and unable to make progress toward loan forgiveness.

In reaction, the Department of Education is reinstating repayment plans that may not be as generous as the SAVE plan but could help borrowers in various situations.

What Are My Options?

Since the Eighth Circuit Court of Appeals ordered the government to pause the SAVE program in July, the IBR and the Standard Repayment Plan were the only active choices for borrowers. Enrollees could apply to the SAVE plan, but their loans would be put in forbearance as their application was processed.

Starting next week, borrowers can apply to the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans to get out of the SAVE plan.

Here are the details of each available plan:

• Standard Repayment Plan: If borrowers don’t pick a repayment plan, they are automatically placed in this plan. Monthly payments are typically higher than those in other plans because they are fixed and paid over 10 to 30 years.
• Income-Based Repayment Plan: Monthly payments generally equal 15% of your discretionary income (the difference between your annual income and 150% of the poverty guideline), divided by 12.
• Pay As You Earn Plan: Monthly payments generally equal 10% of your discretionary income (the difference between your annual income and 150% of the poverty guideline), divided by 12.
• Income-Contingent Repayment Plan: Under this plan, you would pay the lesser of two options. The first option is monthly payments that take the amount you would pay under a standard repayment plan for 12 years and adjust it to take into account your income and life circumstances, such as if you’re married or have dependents. This formula has a variety of factors and is calculated differently for each person. The other option is payments of 20% of your discretionary income (the difference between your annual income and 100% of the poverty guideline) divided by 12.

Some options may be better than others for you, depending on your needs and situation.

If You Are Seeking Public Service Loan Forgiveness

For several months, borrowers enrolled in the SAVE plan have been unable to make qualifying payments toward total loan forgiveness under the Public Service Loan Forgiveness (PSLF) program.

If you want to continue working toward PSLF loan forgiveness, applying to another repayment plan would allow you to work toward achieving it. Payments under any of the available plans would get borrowers closer to forgiveness. However, depending on how close you are to forgiveness, you could finish paying off your loans before reaching the required 120 qualifying payments under the 10-year standard plan.

If You’re Enrolled in the Standard Repayment Plan

Although not as generous as SAVE, the revived income-driven repayment plans, ICR or PAYE, would still lower monthly payments for borrowers in the standard repayment plan.

Borrowers only qualify for these plans if their estimated payment is less than what they would pay on a standard repayment plan within 10 years. To qualify for the PAYE plan, you must have received your loans after Oct. 1, 2011, or consolidated your loans.

If You Have Big Financial Decisions Ahead and Need More Certainty

Borrowers under the SAVE plan will be under forbearance until the lawsuits surrounding it are settled. The Department of Education has said borrowers will be in forbearance for at least five more months.

Additionally, Donald Trump’s election has some borrowers worried about the fate of SAVE and PSLF programs.

This uncertainty has thrown many borrowers into limbo and prevented some from making significant financial plans until they get more clarity. If you are facing major financial decisions and need to know what your student loan payments will be long-term, you could apply for any of the available options. If your income qualifies, PAYE or ICR would likely result in the smallest payments.