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Millions of federal student loan borrowers currently benefiting from the Saving on a Valuable Education (SAVE) repayment plan face potentially substantial payment increases as the federal forbearance period ends. So how much could these repayments increase by?
The SAVE plan, introduced by Joe Biden's istration, has allowed many borrowers to make minimal or zero monthly payments based on their income, but now it has been struck down by the Trump istration.
As a result, those enrolled in the plan must prepare for changes that could increase their monthly obligations considerably as the Department of Education is also intensifying efforts to collect from borrowers in default, of which there are more than five million federal student loan borrowers.
These people could be subject to Treasury Offset actions, which allows the government to intercept federal payments like 15% of wages for federal employees and Social Secuity benefits, and wage garnishment.
Although Social Security offsets are paused, the Department has begun issuing warnings to borrowers about impending offsets, providing a limited window to dispute, request hardship, or enroll in a default resolution program.
Wage garnishment, set to commence imminently, permits the government to require private employers to withhold up to 15% of a defaulted borrower's income. This can occur alongside Treasury Offset, threatening a double-whammy to those who will be required to repay.
Borrowers typically receive a "Notice Prior To Wage Withholding" with a 30-day period to respond with dispute or hardship claims. Although it is possible to end garnishment through rehabilitation or discharge programs, doing so is complex and may require continued payments alongside garnishment.
What do the Republicans plan for SAVE borrowers?
House Republicans recently ed legislation to repeal SAVE and transition borrowers to a modified income-based repayment plan (IBR), which may dramatically increase monthly costs, putting American citizens under even greater pressure.
For example a single borrower earning $40,000 per year would see payments increase from $40 under SAVE, to over $200 under IBR, alongside battling the rising costs of living and inflation across the nation.
A second example comes from the fact that a married borrower with two children earning $100,000 would see payments rise from about $230 to nearly $650 monthly.
However, the bill also introduces a Repayment Assistance Plan (RAP), offering an alternative repayment option that could be more affordable for some borrowers but generally extends repayment to 30 years before eligibility for loan forgiveness.
For instance, under RAP, a single mother earning $45,000 might pay around $50 monthly, more than SAVE but less than IBR, yet face a longer repayment horizon and delayed forgiveness - which would alleviate immediate pressure.
So with the SAVE repayment plan no longer an option, student loan borrowers face a future of higher monthly payments and stricter collection efforts, especially those currently in default. Borrowers should prepare for significant payment increases and review alternative repayment plans.