Millions of borrowers participating in the Saving for a Valuable Education (SAVE) repayment plan are facing the requirement to transition to a new repayment plan and resume payments after an extended hiatus of nearly six years.
The COVID-19 pandemic payment pause initially relieved financial burdens for many borrowers, allowing approximately 7.7 million individuals on the SAVE plan to avoid making payments since March 2020. During this period, administrative forbearances and $0 payment options have supported borrowers’ budgets. However, as the Department of Education announces the discontinuation of the SAVE plan due to a lawsuit settlement, borrowers must now seek alternatives, often with less favorable terms.
With the closure of the SAVE plan, many borrowers will need to switch to other income-driven repayment plans, which may result in payments ranging from $100 to $500 more than what SAVE had previously required. This is particularly concerning for those who have become accustomed to making no payments over the past few years.
When payments resumed for some borrowers in October 2023, many opted for the SAVE plan due to its reduced payment structures. The Biden administration implemented a grace period lasting until September 30, 2024, during which borrowers could miss payments without immediate repercussions to their credit or risk of default. Unfortunately, this grace period has led many to feel less urgency to begin repayments, particularly as over half of SAVE borrowers have been enjoying $0 monthly payments.
Furthermore, as lawsuits surrounding the repayment plan escalated, all SAVE borrowers were placed under administrative forbearance, prolonging their period of non-payment. Although payments are expected to resume, the Department of Education has not specified a timeline for transitioning borrowers out of the SAVE plan. Regardless, borrowers are encouraged to begin reviewing their repayment options in anticipation of upcoming changes.
While the transition may pose challenges, it also provides an opportunity for borrowers to reassess their financial situations and explore the variety of payments plans available, potentially leading to more manageable repayment solutions in the long run. It is crucial for borrowers to stay informed and proactive about their choices during this transition to ensure continued financial stability.