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Who qualifies for $0 student loan payments?

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(NEXSTAR) — While student loan payments are set to begin soon, some borrowers could find themselves with $0 monthly payments. 

It’s due to the Biden administration’s Saving on a Valuable Education, or SAVE, Plan, which officially launched Tuesday

In a statement, Vice President Kamala Harris said the plan could save the average borrower around $1,000 a year. Tens of millions of borrowers are expected to qualify for SAVE, which is now a main income-driven repayment option for borrowers.  

How does the plan work?

According to the Education Department, SAVE calculates a monthly payment based on your income and family size. 

“The SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers,” the department’s Federal Student Aid Office explains.

Monthly payments are so much lower on SAVE than other IDR plans because it increases the income exemption to 225% of the poverty line, up from 150%. This means a single borrower making $32,800 or less would owe no loan payments, according to the Federal Student Aid Office. For a family of four, that level is $67,500 or less.

Additionally, borrowers who make their monthly payments will not see their loan balance grow because of unpaid interest. 

“If $50 in interest accumulates each month and you have a $30 payment, the remaining $20 would not be charged,” officials offered as an example.

Married borrowers who file taxes separately no longer need to include their spouse’s income on their application, either. 

How do you know if you qualify? 

The Education Department says any borrower with eligible loans (more on that in a moment) can qualify for the plan.

SAVE is replacing the Revised Pay As You Earn Repayment plan, better known as REPAYE. If you were on the REPAYE plan, you automatically qualify and have been enrolled in SAVE by the Department of Education.

You’ll also need to make sure your federal student loans qualify for the payment plan. That includes direct subsidized and unsubsidized loans, direct PLUS loans (used for graduate or professional students), or direct consolidation loans that did not repay any PLUS loans made to parents. There are five loans that can qualify only after they’ve been consolidated into a direct consolidation loan: subsidized and unsubsidized federal Stafford loans (both from the FFEL Program), FFEL PLUS loans (for graduate and professional students), FFEL consolidation loans that did not repay PLUS loans made to parents, and federal Perkins loans. 

There are some loans that do not qualify. That includes any loan currently in default, and four different loans made to parents: direct PLUS loans, direct consolidation loans that repaid PLUS loans, FFEL plus loans, and FFEL consolidation loans. 

How much will I owe?

Generally speaking, a borrower on the SAVE plan will owe 10% of their discretionary income, according to the Department of Education. 

As mentioned above, a single borrower making roughly $30,000 will have an estimated monthly payment of $0 on the SAVE plan. A borrower in a family of five making roughly $60,000 or less will also owe $0 monthly. 

The Federal Student Aid Office offered the below graph showing how much a borrower may owe monthly.

Graphic from Department of Education Office of Federal Student Aid.

Ultimately, the easiest way to determine how much you could owe is to apply for the plan online. The Department of Education says applying takes about 10 minutes. You’ll need an FSA ID (which you most likely have if you have federal student loans), personal information, financial information, and your spouse’s information, if applicable.

More changes are expected to come next summer. In July 2024, borrowers with undergraduate loans will see their monthly payments cut to 5% of their discretionary income, down from 10%. If you have an original balance of up to $12,000, you can see your loans forgiven after 10 years. Have more than $12,000? Add an additional year for every $1,000 more.

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