Student loan repayments resume next month, leaving borrowers little time to rethink their
Given the Supreme Court's decision to rule against
"The SAVE plan will potentially help Americans pay off their debt quicker, allowing them to start buying houses, start families, and all those other things that had been slowed down because of their debt," says Dan Macklin, president of Summer, a company that partners with employers to help borrowers navigate and reduce their student loan debt. "But SAVE is exciting and confusing in equal measures."
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For Macklin, the uncertainty mainly lies in who this plan will actually benefit. Notably, no one is excluded from the SAVE plan due to their income size; all student borrowers are theoretically eligible to apply. In fact, borrowers who were already enrolled in the Revised Pay As You Earn Repayment plan (another type of income-driven repayment plan that will become unavailable in 2024) are automatically enrolled in SAVE.
However, parent borrowers are not eligible for SAVE, leaving nearly four million Americans out, highlights Macklin. And while student borrowers with high incomes can apply, Macklin notes that SAVE will not likely benefit them. Borrowers would have to earn an estimated $65,000 a year or less to see the same or lower monthly payment amount compared to a standard 10-year repayment plan.
Still, Macklin is confident that SAVE can be life-changing for the right borrower. While SAVE payments are currently capped at 10% of one's discretionary income, starting next summer, the cap will be at 5%. This means individual borrowers with an income of $32,8000 or less will have a monthly payment of $0; for a family of four, this number jumps to $67,500 or less. Even more crucially, SAVE doesn't let loan balances grow due to unpaid interest, just as long as borrowers make their monthly payments, explains Mackin.
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"SAVE caps interest growth, which historically hasn't happened with [repayment plans]," he says. "If monthly payments don't cover accruing interest, loan balances go up rather than down."
Macklin points out that in 2020, 60% of outstanding student loan debt was higher than the initial balance due to interest. In addition to taking this into account, the plan offers total loan forgiveness after 10 years of repayments to borrowers with an initial balance of $12,000 or less — a year is added for every $1,000 more on their balance, with a cap of 20 years for undergraduate borrowers
As good as it sounds, Macklin is already noticing workers are struggling to understand whether they qualify and should apply. But this is where employers can swoop in and make a difference by offering loan navigation services as well as financial contributions, says Macklin. There's no better time than now for employers to begin communicating with their employees about their repayment options.
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"Next month is the first time in three years 43 million Americans are being asked to pay back their loans," says Macklin. "Your employees will be receptive to information about this because this is something they are tackling and struggling with at the moment."
Macklin advises employers to remind their employees about their own benefits that could come in handy next month and point to where employees can learn more about SAVE. With the Secure Act 2.0 going into effect in January 2024, employers should determine whether they want to match their employees' student loan contributions and put that money into their
If employers are on the fence about making contributions to employees' monthly payments, Macklin encourages them to consider just how much of their workforce is impacted by student loan debt. A workforce that is financially stressed and overwhelmed is not likely to be a productive one, he says.
"Don't underestimate the number of employees who are affected by this," says Macklin. "Student loans are one of the largest worries for a majority of employees out there."
