Here’s how to decide on the right student loan repayment plan for you

The Education Department made the plans available again while its new repayment program, the Saving on a Valuable Education plan, or SAVE, remains tied up in legal battles.

Republican attorneys general in Kansas and Missouri, who led the legal challenges against SAVE, argue that President Joe Biden is essentially trying to find a roundabout way to forgive student debt after the Supreme Court blocked his sweeping debt cancellation plan in June 2023.

The SAVE plan comes with two key provisions that the lawsuits have targeted. It has lower monthly payments than any other federal student loan repayment plan, and it leads to quicker debt erasure for those with small balances.

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While the plan is on hold, the Education Department has put SAVE enrollees in an interest-free forbearance. Having a $0 monthly bill for the time being could be appealing to many borrowers, but there is a downside. To that point, those hoping for loan forgiveness under the income-driven repayment plan’s terms or through Public Service Loan Forgiveness aren’t getting credit for the months that pass. (PSLF offers debt erasure for certain public servants after 10 years of payments.)

Those who enroll in one of the two new repayment plans will get credit, experts say.

“The Department continues to defend in court the authority to cut payments for borrowers with high debts and low incomes through the SAVE Plan,” said U.S. Under Secretary of Education James Kvaal in a statement. “In the meantime, we are making more options available to low-income borrowers, teachers, servicemembers, and other public servants so they can make the best choices for their financial situation.”

Some borrowers who are in the SAVE program’s interest-free forbearance might want to sit tight, said higher education expert Mark Kantrowitz. Not having to make payments might be a relief to those who are experiencing any financial struggles.

However, Kantrowitz said, “the forbearance may end under the Trump administration.”

And again, months in the forbearance will not bring you any closer to debt forgiveness, he added.

Those who do want to credit toward debt cancellation under PSLF or an IDR plan may consider switching to one of the Education Department’s other income-driven repayment plans, such as one of the two recently reopened programs, the Pay as You Earn Plan and the Income-Contingent Repayment Plan.

Borrowers should first check to see if they qualify for PAYE, Kantrowitz suggests.

That’s because it tends to be the most affordable option. For example, your monthly bills can be limited to 10% of your discretionary income and your debt may be wiped out after 20 years. Under the plan, borrowers also make no payments on the first $22,590 of their income as an individual, or $46,800 for a family of four, according to the Education Department’s Dec. 18 press release.

For comparison, the ICR plan can offer $0 payments for single individuals making up to $15,060, or $31,200 for a family of four, the Education Department said. Above these amounts, some borrowers’ bills are set at 20% of their income, it added.

There are several tools available online to help you determine how much your monthly bill would be under different plans.

Meanwhile, the Standard Repayment Plan is a good option for borrowers who are not seeking or eligible for loan forgiveness and/or can afford the monthly payments, experts say. Under that plan, payments are fixed and borrowers typically make payments for up to 10 years.