By Katie Lobosco and Curt Merrill, CNN
Washington (CNN) — A new federal student loan repayment plan could lower monthly payments for millions of borrowers.
The Biden administration made the plan available ahead of the resumption of student loan payments in October after a yearslong pandemic-related pause.
The plan – known as SAVE (Saving on a Valuable Education) – calculates monthly payments based on a borrower’s income and family size and does not take into consideration how much student loan debt is owed.
Use this calculator to see how much your monthly payment would be this year if you’ve enrolled in the new program.
How Biden’s new program works
There are other federal student loan programs – known as income-driven repayment plans – that similarly tie monthly payments to a borrower’s income and family size.
But low-income borrowers will likely see the smallest monthly payment under SAVE.
Plus, unpaid interest will not accrue under the new plan if a borrower makes a full monthly payment. That means that a borrower’s balance won’t increase even if the monthly payment doesn’t cover the interest accumulated that month.
There is also a forgiveness component. Once the new repayment plan is fully phased in next year, some borrowers’ remaining balance could be wiped away after making at least 10 years of payments.
Most borrowers with federal student loans will qualify for the new repayment plan, but that doesn’t necessarily make it the best option for everyone. Since monthly payments are lowered, it may also increase how long it takes to pay off the loan, potentially resulting in more being paid back over time with interest.
Borrowers can apply for the SAVE plan by submitting an application for income-driven repayment plans on the Federal Student Aid website.
Why payments could change in the future
Once the new plan is fully implemented in July 2024, many enrolled borrowers will see their monthly payments cut in half.
This year, borrowers’ payments will equal 10% of their discretionary income. But next year, payments on loans borrowed for undergraduate school will be further reduced to 5% of discretionary income.
Borrowers who have loans from both undergraduate and graduate school will pay a weighted average of between 5% and 10% of their income based upon the original principal balances of their loans.
Payments under SAVE and any other income-driven repayment plan are recalculated on an annual basis and adjusted for any income or family size changes.
Generally, your monthly payment will go up if you get a raise or if you get married and your spouse has an income.
But married borrowers can potentially lower their monthly payment by filing taxes separately, allowing them to exclude their spouse’s income from the calculation.
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