Millions of federal student loan borrowers are racing to pick new repayment options under the governmental rules.
That’s according to a report Sunday (Sept. 13) from The Hill, which says borrowers on the now-defunct Biden-era SAVE Plan must choose a new repayment plan within 90 days of being notified, or automatically get transferred to an option that would give them the largest increase in monthly payments.
Under the updated regulatory framework, the newly introduced Repayment Assistance Plan (RAP) — which limits payments at up to 10% of adjusted gross income — and standard repayment are the only options for loans disbursed after July 1.
The first set of borrowers that received the notice must take action before Sept. 29, the report said. All SAVE borrowers are due to receive their 90-day deadline by the year’s end.
Although other repayment options are available for borrowers with loans taken out prior July 1, some of those plans will also fade away in the future, the report added, noting that the Pay As You Earn and Income-Contingent Repayment options are due to end in 2028.
“The biggest complaint has definitely been the high cost of exiting the SAVE plan, the confusion with what plans they can get onto, reminding folks that did not take out loans prior to July 1 that they can still apply for what we’re calling now legacy plans,” Natalia Abrams, president of the Student Debt Crisis Center, told The Hill.
The White House contends that borrowing caps and streamlined plans will force universities to lower tuitions, which now stand at an average of $90,000 per year. However, consumer advocates warn of significant default risks across the nation’s $1.7 trillion student loan portfolio, where 9 million borrowers are already in default and 3 million are delinquent.
Research by PYMNTS Intelligence into student loans has found a mix of regret and pride among the people who have taken on debt to pay for their education, especially among those who live paycheck to paycheck. As covered here last year, one-fifth of that group said that education expenses are part of why their budgets are tight.
“Regret sits alongside resolve: 37% regret their financial choices about education, yet 63% would make the same decisions again despite the hit to their finances,” PYMNTS wrote.
The changes to the student loan program are coming as paycheck-to-paycheck consumers are feeling increasingly burdened, with many of them saying there is nothing left to cut, as PYMNTS CEO Karen Webster wrote in a column last week.
“Their baskets aren’t empty, but cheap rungs for trading off or cutting out are exhausted. What’s left is the car, the childcare, the rent,” the column said. “Telling them to skip the avocado toast isn’t helpful. It assumes spending that no longer exists and misses the more obvious point. The next thing on the list to cut has consequences the whole household can feel.”
