SAVE Plan aims to help low-income student borrowers by freezing interest
LAKE CHARLES, La. (KPLC) - More than 4 million student loan borrowers have enrolled in the Biden Administration’s new SAVE plan, which is designed to help students pay back their loans at a reasonable pace.
Interest on federal student loans began accumulating again this month after three years on pause during the pandemic.
Many borrowers were disappointed after the Supreme Court denied President Biden’s student debt forgiveness plan over the summer. But now, the administration has come up with a new plan to help ease that financial stress for some borrowers.
After their original plan was struck down, the Biden-Harris Administration announced the new SAVE Repayment Plan, which is based on income and will save the typical borrower about $1,000 a year.
SAVE stands for Saving on a Valuable Education.
The SAVE Plan is an income-driven repayment (IDR) plan that calculates payments based on the student’s income and family size rather than how much they owe. It also forgives remaining balances after a certain number of years.
A key part of the plan will prevent balances from growing by freezing interests to those who make less than $30,000 a year.
Lake Charles financial advisor Sam Hebert said that this will bring relief to those not making a certain amount until their income reaches that level.
“If you’re making $15 an hour, and you’re getting out of school and can’t find a job, you won’t pay any of your loan back at that time. And there won’t be any interest accruing. So, the interest will freeze, depending on your income,” he said. “Then if you get that job you’ve been looking for, that you graduated with, then income goes up and you’ll start paying but interest won’t keep accruing while that’s happening.”
Students will never see their balance grow due to unpaid interest, as long as they keep up with their payments.
“Most loans, if you don’t pay the note then that’s great, but it’s building up this big bare of interest that you have to deal with later. In this situation, it’s not. It’s freezing it like it never happened and whenever you start making more money then you’ll start paying interest like any loan,” said Hebert.
While some of these benefits may not apply to certain students current situations that could easily change depending on your family size.
“In general the less money you make the less you’re going to have to pay on your loans and they’re going to freeze the interest so the interest won’t keep accruing,” said Hebert.
This means the SAVE plan will stop the interest from building up if you are making less than $30,000 and when the payments resume the interest will remain what it was before the freeze.
Hebert said everyone should sign up.
“You could fall into a slot even though you make more than 30. It could suspend interest payments for you or get rid of them altogether, and there are certain criteria after 20 to 25 years they’ll forgive the loan anyway,” he said.
Hebert suggested people sign up quickly in case the program goes away down the road.
To sign up for the plan click here.
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