Federal Student Loan Repayments Restarting in October

CHATTANOOGA, Tenn. (WDEF)- Federal student loan payments are soon to resume for millions across the country.

Back in June, the Supreme Court ruled the President’s plans to strike down $10,000 to 20,000 worth of student loan debt as unconstitutional.

As payments resume next month, the Saving on a Valuable Education (SAVE) Plan has been offered up as a source of relief.

The SAVE Plan is an income driven repayment plan being offered to federal student loan borrowers.

The estimated monthly payment chart under the SAVE Plan based on income. (Courtesy: US Department of Education)

The SAVE Plan replaces the Revised Pay As You Earn (REPAYE) Plan, which was the federal government’s previous income driven repayment plan.

Chris Hopkins, a financial planner with Apogee Wealth Planners, says it will likely impact about half of all borrowers.

Hopkins said, “The most important thing it is going to do, on average, it is going to reduce the monthly payment for the typical borrower from a maximum of ten percent of their annual income down to five.”

The SAVE Plan increases the income exemption level from 150% above the poverty line to 225% above the poverty line to avoid having monthly payments depending on household size.

For example, a single person may have their payments cutoff at roughly $32,000 of income while someone in a family of four may qualify at roughly $67,000.

Under the plan as well, unpaid interest would not be added if a borrower met their monthly minimum payment.

Hopkins says there are numerous arguments on both sides on if this plan will work in the long term.

Hopkins discussed, “Why should a student loan be treated any differently than a car loan or a mortgage or a credit card debt, why don’t we just forgive my car loan, what ’s left of it. There’s a fundamental problem of fairness. There’s a fundamental problem of fairness to those who have already repaid their loans on time. On the other hand, the student loan program as it exists is badly broken.”

However, he does say it will likely not see the same fate as the previous loan forgiveness push.

Hopkins said, “I think there’s room to coalesce behind something like this.There will be challenges to it. Legal challenges perhaps not so much, but there are some members of Congress that are threatening legislation to undo it, but I think this one is going to stick.”

Borrowers are not automatically enrolled into the plan.

You do have to enroll on the Federal Student Aid website.