This summer, the U.S. Department of Education introduced a student loan payment-plan that provides the lowest monthly payments of any income-driven repayment plan available to almost all student borrowers, according to its website.
Regulations will go fully into effect July 1, 2024, but this summer some critical benefits have already been introduced.
The SAVE Plan or “Saving on a Valuable Education Plan,” is a new plan replacing the “Revised Pay As You Earn Plan”, or REPAYE Plan. The new plan increases the income exemption from 150% to 225% of the poverty line (now $32,000 annual income), as a result, decreasing monthly payments, according to Federal Student Aid.
According to Federal Student Aid, the plan eliminates all of the remaining interest for both subsidized and unsubsidized loans after a scheduled payment is made, and excludes spousal income for borrowers who are married and file separately.
Dr. Isarin Durongkadej, assistant professor of finance at San Jose State, said student loan plans are usually categorized as either income-driven or non-income driven. With income-driven plans, the student’s monthly payment depends on their income and the size of their family.
“When a student takes out a loan and then graduates, they're going to choose what type of loan repayment they're going to do for the rest of their life depending on the plan they’re choosing,” Durongkadej said.
He said borrowers would have to pay a fixed amount each month, regardless of income.
Durongkadej said this includes if the borrower does not have an income at any specific point in time.
The new SAVE plan is income-driven. If a borrower earns an annual income of $200,000 a year, their monthly payment would be higher than that of someone with an annual income of $50,000.
If a borrower’s annual income is lower than the threshold, an annual income of $32,800 or lower, they do not have to pay at all.
“However, once you choose one type, you can choose another type next year,” he said. “You don't have to stay with it for the rest of the loan payment.”
Dr. Durongkadej also said with income driven plans, after 20-25 years of payment, there will be debt forgiveness. Even if a borrower still owes residual money, their student loan will be canceled.
Dr. Durongkadej said the general term of a “subsidized payment” means money of which the government pays the difference. Unsubsidized payment is when the borrower pays the full price of everything.
The subsidized interest expense for those whose income is less than $32,800 during the SAVE plan is paid for by the government through Federal Student Aid. Sometimes the loan is not directly from the government, but from an agency or other institution that the government has to pay.
“I think that the main point is just the government trying to help more people who have low incomes,” Dr. Durongkadej said. “They increase the threshold of who is eligible for low or zero monthly payment. Then maybe put more subsidies on the interest expenses.”
Environmental studies junior, Aryan Singla, said he had a positive experience getting his student loan.
“Every year, I get a loan from the federal government,” Singla said. “It's basically for people without jobs, and they pay me usually in cash that goes to my bank. I use it to pay for my needs.”
Singla said his mother helped him apply, and the process went smoothly.
He said he signed some forms, went through a background check and only had a few road-blocks.
“They found out that someone hacked my account. . . We had a couple of breaches,” Singla said.
Singla said his disability also made it fairly easy to get the loan, because his case went quicker.
“It was helpful because the truth is, without the loan, it would be very difficult for me to pay my financial stuff,” he said.
Data science junior Gavin Silva, said he had a different experience getting his loan.
“If any unforeseen circumstance happens where I can't come up with the money in time, I'm just gonna have to drop out. Knowing that it can come, but it might not just wasn't a good feeling.”
Silva said he got a $5,500 direct, unsubsidized loan split in half to pay $2,750 for each semester.
“The process wasn't too bad,” Silva said. “When I finished the loan form, I got really scared for a second because it didn't say ‘Finished’ even though I did finish it.”
Silva said he had to wait two weeks before he could receive his loan.
He said while he was waiting he had to call his school to inform staff members about his financial situation.
“I had to wait two weeks, and call the school to let them know ‘Hey, can you guys please expedite this?’ just to really get that peace of mind that I'm actually going to go to San Jose State,” Silva said.
He said the loan helped him financially when he received it, but he still felt scared because he got the money two weeks after his semester started.
Silva also said he didn’t get any notification when the loan came through.
“I wish that I would have gotten some sort of notification to show that I actually got it,” Silva said. “I was this close to giving up on going here, actually.”
