Many federal student loan borrowers are at risk of seeing their monthly payments double or triple if they do not exit the now-defunct Saving on a Valuable Education (SAVE) plan by their deadlines, which for some is as soon as September 29.
The SAVE plan, which offered low payments based on discretionary income, has been overturned due to legal challenges, leaving over 6.9 million borrowers with an average debt of nearly $55,000 in a precarious position. Borrowers have been slow to act, with many potentially adopting an 'ostrich approach' to the looming deadline, according to higher education expert Mark Kantrowitz.
The Department of Education is notifying borrowers in waves, and while some may have until the end of the year to transition, those who fail to select a new repayment plan will be placed into either the Standard Repayment Plan or the new Tiered Standard Plan, which could significantly increase their monthly payments.
New income-driven repayment options, such as the Repayment Assistance Plan (RAP), offer lower monthly payments and additional benefits, making it crucial for borrowers to assess their options and prepare financially for potential changes in their payment obligations