Should you apply for the SAVE plan now or not?

This is a big question a lot of people are going to face in the coming days as the student loan pause ends. And there's a little bit of a trap that you need to know about. So the SAVE plan is not the best plan for everybody to apply for. I'll give you an example. Let's say you had a payment that was $200 a month before the pandemic. Well, that payment is good until 2024, maybe even 2025. And if you apply for the SAVE plan, your payment is going to be recalculated with a new tax return. So maybe that tax return is much higher income than you made in 2018 or 2019. So that means that your SAVE plan payment could be much, much worse than what you're currently on for your student loan payment, particularly if you're going for loan forgiveness. So this is a big concern. The SAVE plan is not the best plan for everybody. Even after, you know, people have to recertify their incomes with the most recent tax returns, SAVE is good for some people but not everybody. SAVE does not have a payment cap. SAVE is 25 years until forgiveness instead of 20 years for things like pay and new IBR. So the reality is it depends on your situation as to whether or not you should apply for SAVE. Obviously the Biden administration has really achieved a lot with this repayment plan and so a lot of people are going to be, you know, promoted the SAVE plan who may or may not actually need to use it. So this is a big concern. I think, you know, the Biden administration certainly wants to make the everyman message available to people and the typical average borrower probably does need to apply for the SAVE plan. But you have to ask yourself, are you the average borrower or not? Do you have a 30k type of debt and do you have a 40 to 60k type of income? If that's you then, yeah, SAVE might save you some money, no pun intended. But you have to think about student loans. What matters is individualized approach based off of what's good for you. So if you need to go for forgiveness, you might need to do one set of rules. If you need to go for repayment, you might do another set of rules. A lot of people too will be very surprised that they can get interest subsidies on this new SAVE plan that weren't available before, particularly for people that have, you know, middle-class types of incomes, but also people that are new graduates. If you're a new graduate, you could sign up for the SAVE plan and use a zero dollar income when you're a student and get your first year out payments of zero dollars a month with a hundred percent of your interest subsidized. So a lot of people could get fully subsidized interest on the SAVE plan for their first year out. The second year you're out, you could use your tax return from when you were working right after graduation, which for most people is probably like September to December. And with the deduction being 225% of the poverty line, a lot of people might be able to get payments of, you know, virtually nothing for year two as well, and interest that's super subsidized as well for year two. So if you make prepayments during that time on the SAVE plan, all that money is going towards paying down your principal balance. Now there's a little bit of complication, you know, that I don't need to get into about, you know, accrued interest not getting capitalized, making it a repayment. So technically it has to go to accrued interest first. That's like a technicality that doesn't matter that much. The point is, is if you have a zero percent interest rate, it's working out the same exact way as it would during the student loan pause if you qualify for that kind of a payment on the SAVE plan. So, you know, try to tune out the noise. A lot of people are gonna tell you that the SAVE plan is the best thing for everybody, and the reality is, is that it depends. What does it depend on? Well, can you get a really low payment on SAVE that subsidizes your interest fully, and is it the best plan for you? A lot of people also need to be aware that the pay-as-you-earn plan is being sunsetted in July of 2024, and a lot of people that are going for 20 and 25-year forgiveness that borrowed between 2007 and 2014 need to be super careful about leaving the pay plan, because when you leave, you won't be able to get back on it. So beware of applying, especially if you were on an IDR plan from before. If you were on an IDR plan from before the pandemic, your payment is probably way lower than it will be if you apply for the SAVE plan. Remember anybody on repay gets entered into the SAVE plan automatically, so nobody needs to worry about that. You know, if you were on the IBR or the pay plans, that payment is probably lower if you were on those plans already from before the pandemic than what it'll be now. So lots of stuff going on with student loan payments starting again. Interest is starting September 1. Payments are starting October 1, in terms for most people at least, and if you need help, our student loan planner team can help you come up with a custom plan. It'll probably save you a lot of money. Studentloanplanner.com slash book is the link for that, and if you have any comments, put them in the comment section below, and thanks for watching.