(WSPA) – Three years have passed since the last time most student borrowers had to make payments on their loans. Now that payments have resumed, borrowers have a lot of questions about what repayment plan is the best choice.
Whatever you do, experts say, don’t do nothing. Researching and switching to the right plan for you can possibly prevent you from leaving money on the table.
24-year-old Mia Moize knew early on she wanted to go into public service.
“It was one of those things where I was like I can do good and get rewarded, so that’s very nice,” Moize said.
To meet her goal of becoming an occupational therapist, Moize has had to take out four student loans over the last seven years for both undergrad and graduate school.
“When I graduate in December, I’ll have $180,000 in loans…It keeps me up at night,” she said.
New “save” repayment plan
That’s why Moize was delighted to learn about the new Federal SAVE Repayment Plan.
It calculates your monthly payment based on your income and family size; the lowest of any income-driven plan.
In some cases, you pay nothing, like a single borrower earning $32,800 or less or a family of four earning $67,500 or less. The chart on this page is helpful for borrowers to understand the possible “estimated monthly payments.”
Melanie Gillespie, the Director of Financial Aid at Tri-County Technical College, said one of the most valuable features of SAVE is your loan won’t grow due to unpaid interest.
“Let’s say your payment is reduced to $30 but your interest is $50 a month, you pay the $30 which would be an interest-only payment. The other $20 in interest is forgiven by the federal government so that your principal remains the same,” according to Gillespie.
When “save” may not work for you
That doesn’t mean SAVE is right for all borrowers.
If your earnings approach six digits or more, you won’t likely reap the benefits.
Daniel Muller, the Director of Student Financial Aid at Bob Jones University, said even low wage earners should look at the overall cost.
“The biggest mistake borrowers make would be being short-sighted, not seeing the whole picture in view,” Muller explained.
For instance: If you have a loan of $32,000, and you earn $40,000 a year, the “standard” 10-year repayment plan would have a much higher monthly payment of $322 dollars versus just $60 for SAVE. However, since the SAVE plan is at least double the length (20-25 years) you would be paying $10-thousand dollars more over the life of the loan (Standard $39,000 v. SAVE $49,400).
Helpful loan simulator
So how do you know which repayment plan is best for you?
This loan simulator at StudentAid.Gov does all the guesswork for free.
Moize walked us through the process which includes filling out some personal information and loan information and then assessing your repayment goal.
To get specific numbers like your loan amount and interest rate login to the Federal Student Loan Portal or call your loan servicer.
The loan simulator allows users like Moize to compare all the available repayment plans.
A word of caution, with big programs like these, you can run into scams, so your best resources are your loan servicer or StudentAid.gov.
You can also call: 1-800-4-FED-AID (1-800-433-3243), though you may have to wait on the line for a while to get through. Those entities are bound by regulations to act in your best interest.
Loan forgiveness for some
This month the Biden administration forgave $9 billion in student loans that affected public servants, some in the income-driven repayment plans, and people who are disabled. To see if you qualify, call your servicer.
For Moize, the federal site helped her see the SAVE plan with the option for Public Service Loan Forgiveness option after 10 years is a clear choice.
“I’ll only pay off $76,000. The rest will be forgiven, which is $169,000. Yes! that’ exactly what I needed,” Moize said.
The new SAVE plan also will offer loan forgiveness after 10 years starting next summer for people with Federal student loans that had original balances below $12,000.
Another type of “forgiveness”
It’s not exactly wiping away a portion of your loan, but as repayments resume the Federal government is easing the process for people who are both delinquent and those who don’t start back up right away.
While interest will continue to grow, borrowers will not be penalized for failure to resume repayments right away. It is not until the fall of 2024 that delinquent borrowers will be reported to credit agencies.
In addition, those who are already delinquent can initiate a “fresh start” process here. It should help reduce monthly payments while keeping you out of default.
How to cut your interest rate
One of the simplest ways to cut your interest rate is to sign up for auto-payments. That simple act will slash your rate by a quarter of a percent.
You can also look into consolidating your loans to a lower rate but be sure to do the math. Sometimes consolidation can result in a higher rate.
Whatever you do, be sure to review your plan each year. As your salary and circumstances change, leaving our payments on autopilot could cost you.