The end of the SAVE Plan means that over 7 million borrowers must select a new repayment plan within 90 days. If no action is taken, borrowers will be automatically enrolled in the Standard Repayment Plan or the new Tiered Standard Plan, which could result in higher monthly payments.
Understanding the Options
Borrowers can choose from several options, including the Repayment Assistance Plan (RAP), which offers payments based on income, with a $10 monthly minimum. However, RAP forgiveness takes 30 years, and the forgiven amount will be taxed as income. Another option is to refinance federal student loans into a private loan, but this means giving up federal benefits such as income-driven repayment plans and Public Service Loan Forgiveness.
For example, a borrower with a $35,000 federal loan at 6.39% interest and an annual income of $50,000 may be eligible for RAP, with a monthly payment of $208. However, only $22 of this payment would go towards the principal, with the government covering the remaining amount to ensure a minimum of $50 is applied to the balance each month.
In contrast, refinancing the loan at a lower fixed rate of 4.5% over a 10-year term would result in a higher monthly payment of $363, but the borrower would pay off the loan in a decade and save nearly $3,900 in interest.
Original reporting: KEYT (Ventura/Santa Barbara) — read the source article.
