You Can Still Put Off Repaying Your Student Loans. Should You?

By Jennifer Calonia · September 25, 2023 · 8 minute read

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You Can Still Put Off Repaying Your Student Loans. Should You?

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

After years of paused federal student loan payments in response to the COVID-19 emergency, payments are starting up again. Interest charges started accruing in September, with first payments due in October.

While some borrowers are financially prepared to make their payments, not all are. If you’re worried about your upcoming federal student loan payment, you have options. A couple of student loan relief programs — the SAVE Plan and on-ramp period — are available to help eligible borrowers ease back into their payment obligations.

SAVE Plan

The Saving on a Valuable Education (SAVE) Plan is a new income-driven repayment (IDR) option that offers the lowest monthly payments among all IDR plans to a wider group of borrowers. In fact, under this repayment plan, more borrowers qualify for a $0 monthly payment.

It replaces the existing Revised Pay As You Earn (REPAYE) Plan and those who are on REPAYE will automatically be transferred to SAVE.

How Does the SAVE Plan Work?

The SAVE Plan offers various benefits that offer immediate relief, although the full advantages of SAVE rolls out in two parts. The second wave of benefits is expected to go into effect in July 2024.

Like all IDR plans, SAVE calculates borrowers’ monthly payments, based on their income and family size. The main advantage of SAVE, however, is its increased income exemption for the payment calculation.

Other IDR plans determine your discretionary income by calculating the difference between your annual income and 100- or 150-percent of your state’s poverty guideline for your family size. The SAVE Plan raises the exemption from REPAYE’s 150 percent of the poverty line to 225 percent. This results in more eligible borrowers having a calculated monthly payment of $0.

If you qualify for a $0 monthly SAVE payment, you’ll need to recertify your income and family size. The SAVE Plan lasts 20 or 25 years, depending on whether you have undergraduate or graduate debt. After the plan term ends, your remaining balance is forgiven.

Other SAVE Plan features

•   Any unpaid interest accrued each month is entirely subsidized by the Department of Education.

•   Married borrowers can also now exclude their spouse’s income from the plan’s payment calculation. Not having to report your spouse’s income improves your chances at a lower payment.

Some borrowers who are enrolled in SAVE can also look forward to even lower payments 2024 when the remaining benefits are enacted.

Firstly, the program provides a fast track toward student loan forgiveness which also goes into effect. For example, borrowers whose original principal balance was $12,000 or less and have made 10 years of payments will have any remaining balance forgiven.

Other benefits include being automatically enrolled in IDR after 75 days of non-payment thus avoiding delinquency, and receiving credit for past months of non-payment, like during forbearance, which usually don’t count toward forgiveness.

SAVE Plan Eligibility

The only eligibility requirement for enrolling in the SAVE Plan is that you must have eligible student loans, and the loans can’t have been a parent PLUS Loan.

Eligible loans include Direct subsidized and unsubsidized loans, graduate or professional PLUS loans, and Direct Consolidation Loans that don’t include parent PLUS Loans.

If you choose to undergo a Direct Consolidation Loan first, the following federal loans might also be eligible:

•   Federal Perkins Loans

•   Subsidized and unsubsidised Stafford Loans via FFEL Program

•   Graduate or professional FFEL PLUS Program Loans

•   FFEL Consolidation Loans that didn’t include parent PLUS Loans

SAVE Plan: Pros and Cons

Generally, the SAVE Plan is expected to be the most advantageous of all income-driven repayment plans. Although there are a handful of benefits, there are still some potential downsides to consider.

Pros

•   Offers lowest or $0 payment option. SAVE’s new poverty line adjustment broadens the exemption for borrowers who can qualify for a zero-dollar monthly payment.

•   Caps interest. Interest in excess of a borrower’s calculated payment will not be charged, preventing your loan balance from growing.

•   Faster progress toward loan forgiveness. The new approach to how past non-qualifying payments and non-payments are counted toward forgiveness helps borrowers get out of debt faster.

•   Helps avoid delinquency or default. The SAVE Plan offers a long-term solution for low or no payments to avoid the impact of delinquency or default.

Cons

•   Only the lowest income earners get $0 payment. Not all borrowers qualify for $0 payments. Payment amounts are based on income and family size; for example, a single borrower who earns $32,800 or less won’t have a payment requirement, but your payment amount increases as you earn more.

•   Requires annual recertification. Like all IDR plans, you must recertify your income and family size each year, and if you don’t, you’ll be removed from the plan. (Note, however, that auto-recertification will be available starting in July 2024, saving plan participants from having to manually re-submit their income every year.) As with any IDR plan, the result of the recertification may be that your monthly payment amount may change if your income increases over time. If your income rises enough, it may transpire that SAVE no longer offers the lowest monthly payment as compared to other repayment plans or refinancing options.

•   Faces political opposition. Critics of the SAVE Plan argue that the new repayment option is unfair and is an overreach of presidential powers. With the SAVE Plan still in its infancy, there’s no telling where it will land in the following months.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

On-Ramp Repayment Program

As a way to ease student loan borrowers out of the payment pause, the Department of Administration is implementing what it calls the “on-ramp repayment program”. This timeframe temporarily gives borrowers more time to sort out their financial situation before the negative consequences of non-payment takes effect.

How Does The On-Ramp Work?

The Department of Education’s on-ramp program spans 12 months. It begins on October 1, 2023 and is in effect through September 30, 2024. During this one-year period, any borrower who misses a payment, whether the first one that’s due in October or in the middle of the on-ramp, won’t be considered delinquent.

This means that the non-payment won’t be reported to the credit bureaus, and it won’t affect your credit score and ability to borrow other consumer loans or lines of credit. And if you continue to not make your monthly payments during the entirety of the on-ramp, your loan won’t go into default status. This means you can avoid debt collections and federal payouts, like Social Security benefits and tax refunds, won’t be withheld by a treasury offset.

It’s important to understand that although you’ll get short-term respite from the major consequences of non-payment, payments are still technically due and interest still accrues during this forbearance.

On-ramp program eligibility

The on-ramp repayment program is available to any borrower with unpaid federal student loans held by the Department of Education. It’s an automatic warming-up period that doesn’t require any additional steps to participate in.

The Administration advises that those who can afford to pay their student loan payments in October should plan to do so.

On-Ramp Program: Pros and Cons

The on-ramp forbearance offers an extended reprieve from making a student loan payment, if you’re not in a financial position to do so. However, there are considerations to be aware of before missing a payment.

Pros

•   Interest charges won’t capitalize. Any interest charges that are unpaid won’t be added to your principal balance after the on-ramp. This prevents your unpaid loan balance from ballooning.

•   Account status won’t affect credit. The non-payment data won’t be reported to credit bureaus or debt collection agencies. Taking advantage of the on-ramp timeline, won’t adversely affect your credit score or influence treasury offsets.

•   Avoids delinquency or default. The on-ramp lets you keep your loan in a status that doesn’t require monthly payments, but also avoids the negative repercussions of missing payments, like debt collection and credit-related penalties.

Cons

•   Interest continues accruing. Although the on-ramp forbearance defers your payment requirement, interest is still charged each month. While the interest won’t capitalize, it will still need to be paid off when the on-ramp ends.

•   No progress toward forgiveness. Months of non-payment don’t earn you credit toward loan forgiveness. The on-ramp further prolongs your timeline toward having your debt forgiven.

•   Account becomes delinquent after on-ramp. When the on-ramp period expires, the missed payments are still due. In addition to not moving the needle forward, accounts with missed payments after the on-ramp are considered delinquent and can affect your credit.

What To Do If You’re Worried About Payments Due In October

There’s no one federal student loan repayment solution that works for everyone. Whether you’re exploring your options because you can’t afford payments or are hoping to earn loan forgiveness along the way, everyone’s situation is different.

If the impending restart of student loan payments is looming over your shoulders, contact your loan servicer immediately. Discuss where your finances are and the relief options available to you. Addressing your student loans head on can keep your debt in good standing while avoiding more severe outcomes later.

Student Loan Refinancing

Refinancing your federal student loans is another option for student loan borrowers to consider, especially if your existing loans carry a high interest rate. If you don’t qualify for the low monthly payments of the SAVE Plan, refinancing could be another avenue to a lower monthly payment (though you may pay more interest over the life of the loan if you refinance with an extended term). It’s also important to be aware that refinancing replaces your federal student loan with a private one, which means that you’ll lose access to income-driven repayment and other federal benefits.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


Photo credit: iStock/Ridofranz

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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