SAVE Interest is Now Accruing
After years without interest accrual (first due to the COVID forbearance and then during the SAVE litigation), millions of borrowers started seeing their daily interest accrue as of August 1st.
With the Department of Education strongly encouraging borrowers to exit the SAVE plan and get a new plan in place, many are wondering: What now?
Let’s discuss the two main options.
Option 1: Stay in the SAVE plan’s forbearance
Although interest is accruing, no one technically has to get off of the SAVE plan yet. If I had to guess, borrowers will likely be able to stay on it for at least a few more months.
If a borrower is working on paying down high-interest debt, saving up for an emergency fund, or if they’re not pursuing any type of forgiveness (through the Public Service Loan Forgiveness program or an income-driven repayment plan), they may be better served staying on it to lighten up their monthly cash flow since no payments are due.
Option 2: Switch to a different income-driven repayment plan
Borrowers interested in switching plans can apply for PAYE, ICR, or IBR using the online application. To estimate future monthly payments, I love the free VIN calculator.
For my clients pursuing forgiveness, my recommendation has been to look into switching to a different income-driven repayment plan at this time. This is because time spent in the SAVE forbearance does not count toward forgiveness.
Those pursuing Public Service Loan Forgiveness (PSLF) can use PSLF Buyback to buy back time spent in the SAVE forbearance, but given the 1+ year processing timeline, I don’t like relying on it more than necessary. I’ve only had one client successfully get approved for buyback so far.
Borrowers pursuing Income-Driven Repayment (IDR) forgiveness currently do not have a buyback option. There is supposed to be one eventually, but you won’t find me holding my breath.
One quick note about PAYE, ICR, and IBR
The One Big Beautiful Bill is NOT so beautiful for student loan borrowers. It made some significant and detrimental changes to student loan policy, with one of the biggest being the availability of some income-driven repayment plans in the future.
My next blog post and email newsletter will have more information about the PAYE, ICR, IBR, and new RAP plan, and how borrowers can decide which one may be best for them. Stay tuned!
