Understanding Student Loans and the New SAVE Program
Today, we're delving into the world of student loans and taking a closer look at the new SAVE program, an income-based repayment plan designed to simplify the repayment process for student loans.
Before we dive in, let's address the elephant in the room. When it comes to repaying student loans, we encourage you to adhere to a strict budget and establish a plan to pay off your student loans sooner than what the government plan(s) would suggest. Programs like these often stretch out for 15, 20, or even 25 years. Do we really want to be indebted to the government for that long? What impact does that have on our future plans, our dreams, and our financial stability?
Now, with that word of caution out of the way, let's explore the SAVE program. It's crucial to note that this program is only applicable to public loans held by the government. If you have private student loans, unfortunately, this program won't apply. Similarly, parents, any 'Parent Plus' loans you have are not eligible.
The SAVE program calculates your repayment amount based on a new formula, taking into account your income and family size. The program is particularly beneficial for lower-income earners, typically those earning $40,000 or less.
One key feature touted in the program is the accelerated forgiveness schedule. This shifts loan forgiveness from 20-25 years under the old plans to approximately 10 years under the SAVE program. However, this feature is primarily beneficial if your initial borrowed amount was less than $12,000.
Perhaps the most appealing aspect of the SAVE program is that if your repayment amount under the program is less than the interest charged, the excess will not be added to your loan balance, resulting in interest savings.
Don't forget, however, that these plans are long-term, and you'll likely be in a better position if you pay off your loans early. To help you understand this better, I'll link a government resource below where you can compare all the available government repayment plans to determine the best fit for your situation.
We're always available to assist you in understanding any aspect of this or help you create a budget that suits your needs. We can guide you through your cash flow situation and help you on your path to paying off your student loans and setting up a successful life.
