Applying for or renewing an income-driven repayment plan can be a lifesaver, but millions of borrowers don't even know if they qualify. There are four plans for federal student loan borrowers:
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- Saving on a Valuable Education, or SAVE
- Pay As You Earn
- Income-Based Repayment
- Income-Contingent Repayment
Here's what you need to know about the SAVE plan:
The SAVE plan is the Biden Administration's main plan. It replaces the REPAYE plan, and it could save you hundreds of dollars each month.
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How does the SAVE plan work?
For undergraduate loans, you'll only need to pay 5 percent of your discretionary income instead of 10. For many borrowers, that'll cut their monthly payments in half.
The plan also increases the income limit for zero minimum payments. Borrowers making roughly $33,000 or less will see their mandatory monthly payments drop to zero.
If you borrowed less than $12,000 in undergrad loans, your debt could be forgiven in 10 years, instead of 20 or 25.
What about interest on loans under the SAVE plan?
Your balance will not grow from unpaid interest, even if interest is accruing.
"If you are making your minimum payments and you're making your diligent payments and you still have extra interest accrual - your interest accrual is bigger than your payment - the U.S. government is going to forgive that interest from month to month," CNET Money Senior Editor Nick Wolny said. "But the only way they can do that is if you are enrolled in the SAVE plan."
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Which loans are eligible for SAVE?
Most direct federal student loans are eligible for the SAVE plan, while many PLUS loans for parents are not.
FFEL loans and Perkins loans may need to be consolidated into direct loans, but you may lose some benefits, so make sure it's the right choice for you.
Either way, it's worth taking five minutes of your time to see if you could save hundreds of dollars every month.
Join us every weekday morning on Eyewitness News at 5 a.m. for our new segment, ABC7 On Your Side. John Gregory has you covered on money-saving tips, including tricks to save on your bills, smart negotiating tactics, plus where you can score free stuff!