Your Top Student Loan Questions Answered: IDR One Time Adjustment & SAVE Programs

We have made it through the first few months of 2024 and the sixth month since federal student loan payments resumed. According to Department of Education (ED), only 60 percent of the 22 million borrowers with payments due in October made those payments by mid-November. This means that 40 percent of borrowers have not made their payments yet.

Fortunately, ED has rolled out a 12-month on-ramp period which protects borrowers from the harshest consequences of missed payments. In addition to the on-ramp period, there are other options available for those borrowers who are still struggling, or for those who want to get closer to loan forgiveness.

Is it too late to consolidate my loans for the Income-Driven One Time Adjustment or Public Service Loan Forgiveness (PSLF) Programs?

In a previous article, I explained consolidation and discussed if it was the right option for you. In addition to the general benefits of consolidating, consolidation is necessary for certain borrowers to gain access to certain repayment plans and forgiveness programs. One such program is the Income-Driven Repayment (IDR) One Time Adjustment.

Under the IDR adjustment, ED will review borrowers’ accounts and give them credit for certain months that didn’t previously qualify towards IDR forgiveness. This program immediately benefits borrowers who have been in repayment for at least 20 years. However, borrowers with commercially held (private) Perkins Loans, Federal Family Education Loan (FFEL) loans, or Health Education Assistance Loan (HEAL) Programs do not automatically qualify for the IDR adjustment and must consolidate to be reviewed by ED.

Under normal rules, when a borrower consolidates their loan(s), their repayment count is reset to zero. Under the updated, temporary rules, borrowers can consolidate without resetting their payment count. This means that they will receive credit for repayments, and certain periods of forbearance and deferment, back to their initial start of repayment.

In December 2023, ED announced that the deadline for consolidation has been extended to April 30, 2024, for borrowers to receive the full benefit of IDR payment count. The IDR Adjustment will also benefit borrowers who are on the Public Service Loan Forgiveness (PSLF) track, as it will increase their payment count by crediting certain months of forbearance and deferment.

The one-time pay count adjustment will occur in Summer 2024. But borrowers who have non-federally held loans must consolidate their loans into a Direct-Consolidation Loan by April 30, 2024. I encourage borrowers who have Parent PLUS, commercially managed Federal Family Education (FFEL), Perkins, or Health Education Assistance Loan (HEAL) loans to consolidate their loans by April 30, 2024, to get the full benefits of the IDR payment count adjustment. If you have questions about your loans or are unsure if consolidation is right for you, contact me.

SAVE is being called the most affordable repayment plan, but what other benefits does it offer?

In 2023, ED rolled out the new Saving on a Valuable Education (SAVE) Plan and more than 5.5 million borrowers are already enrolled in the program, including 2.9 million with a $0 monthly payment. In addition to the immediate low payment benefits for most borrowers, SAVE includes an interest subsidy, where the government covers any accrued interest that is not covered by their monthly payment. This means that borrowers won’t see their principal balance increase and will make the debt more manageable.

Starting in February 2024, borrowers enrolled in SAVE will see these additional benefits go into effect:

• Payments on undergraduate loans will be cut in half. Currently, SAVE payments are calculated based on 10% of a borrower’s discretionary income. Starting July 2024, payments will be based on 5% of discretionary income. This will result in lower and more affordable monthly payments for borrowers.
• Income-Driven Repayment (IDR) Forgiveness for SAVE borrowers will change to as low as 10 years for borrowers with initial student loan balances of $12,000 or less. Currently, borrowers must be in repayment for 20 or 25 years before they qualify for IDR forgiveness. For borrowers with more than $12,000 in initial balances, the repayment period for forgiveness will rise by one year for every additional $1000 borrowed. ED will start reviewing borrowers for SAVE forgiveness in February 2024.

The SAVE program will have additional benefits coming July 2024, offering lower payments and interest benefits to Direct Consolidation Loan borrowers. Borrowers can apply for SAVE by filling out an application or by calling their student loan servicer. Please note that it is taking longer than usual to process IDR applications and a processing forbearance may be initially applied to borrower’s accounts.

Borrowers should act now if they want to benefit from these updates and get on track with student loan payments. Repayment plans are not a one-size-fits-all for everyone, but the SAVE plan is worth checking out. I encourage borrowers to use the Federal Student Aid Loan Simulator to estimate their monthly payments. If you have any questions, contact me.