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It is very important that students understand not only the pros, but also the cons of taking out student loans.
“student Loans And Higher Education: Exploring The Cost-benefit Analysis”
It’s no secret that Americans are increasingly burdened with student debt. Students need to understand the responsibility they are taking on when accepting student loans. If the responsibility of repaying student loans is not taken seriously, higher financial problems are imminent. Penalties for defaulting on the loan include additional fees, additional interest, and wage garnishment.
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Certainly, student loans can be a blessing for many people, as not everyone has the luxury to afford college. Whether it’s lifting people out of poverty, or helping struggling Americans make ends meet, a source of credit for the underprivileged can have immeasurable benefits. It’s also an opportunity for students to start laying the foundation of their credit history by staying on top of their payments. However, it is important for students and families to be aware of the risk and burden they are carrying.
When an individual takes out a student loan, they are essentially betting that they will exit their college career with the human capital to repay their loan in principle, plus interest. But an education that allows a student to have a fulfilling career and life is worth the financial stress of taking out student loans.
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¹ Additional service charge applies. By clicking ‘Continue’, you will leave our website and enter a site specifically for paying your debt by debit card or electronic check. Student loan forgiveness is not dead. Biden’s SAVE plan could help The Supreme Court may have struck down a broad plan for student loan debt forgiveness, but under President Biden’s new income-based repayment plan, SAVE, the borrowers will pay thousands less.
What’s Next After Supreme Court Blocks Student Loan Forgiveness
Graduates attend Tennessee State University’s commencement ceremony in Nashville on May 7, 2022. Under a new repayment plan, millions of student loan borrowers could see their payments cut in half or more their monthly payment amounts. Jason Davis/Getty Images hide caption
Graduates attend Tennessee State University’s commencement ceremony in Nashville on May 7, 2022. Under a new repayment plan, millions of student loan borrowers could see their payments cut in half or more their monthly payment amounts.
The Supreme Court may have struck down President Biden’s plan for sweeping student loan forgiveness, but another plan that would gradually achieve similar results is in the works. In fact, millions of borrowers could start benefiting from it as early as this fall, when they are expected to start making monthly loan payments after a three-year pause.
Forgiveness is not simple. It will not happen suddenly, in one lump sum. Instead, it will come slowly through a complex new repayment plan — called the SAVE plan, for Savings in Essential Education — that will save borrowers thousands of dollars by keeping their monthly payments small. (as little as $0) while also preventing interest from piling up on what they owe.
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“[It] has the potential to dramatically change student loan repayment in our country as we know it,” said Dominique Baker, an associate professor of education policy at Southern Methodist University.
SAVE is a new form of income-driven repayment plan that the Department of Education says will replace the current Revised Pay As You Earn plan (REPAYE).
The department says that under the old plan, borrowers paid back $10,956 for every $10,000 they borrowed. Under the new plan, they would only pay $6,121.
“This is a big new loan forgiveness policy, especially for undergraduates,” said Jason Delisle, who studies higher education at the Urban Institute.
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In a January review of the SAVE plan, Delisle and his colleagues found that for bachelor’s degree recipients, “the share that fully repays their loans would fall from 59 percent under the current [income- driven payment] up to 22 percent.”
Based on current estimates, SAVE could cost the government anywhere from $138 billion (the department’s estimate) to $230 billion (the Congressional Budget Office’s nonpartisan estimate) to $361 billion (a Penn Wharton Budget Model analysis) in next 10 years. By comparison, the amnesty program just ended by the Supreme Court is expected to have a one-time cost of about $400 billion.
Like current income-based plans, SAVE bases monthly payments on the borrower’s income and family size. But in many ways, the terms of SAVE will be more generous.
The payment plans include an income “floor,” Baker said, below which “the government says, ‘Oh, you don’t have to pay. We think that’s the money you need to live — for food , for gas, for something of that nature.'” This income is essentially exempt.
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The SAVE plan raises this floor, protecting more than a borrower’s income from that monthly payment math — going up to 225% of the federal poverty guideline, up from the current 150%.
According to a fact sheet by the Department of Education, “This change means that single borrowers earning less than $32,805 a year ($67,500 for a family of four) will no longer have to pay .”
Second, as long as borrowers make their monthly payments, the new SAVE plan also prevents interest from accruing. Under previous plans, borrowers with low or $0 payments — too low to cover their monthly interest bill — saw interest accrued. Now, that won’t happen.
Third, borrowers with undergraduate loans will see their monthly payments cut in half because of a big change in the so-called assessment rate. In other words, the Department of Education will base payments on 5% of borrowers’ residual income, not the current 10%.
Student Loan Forgiveness Is Complicated, Because This Is America
And fourth, SAVE includes a more generous forgiveness mechanism. In the past, undergrad borrowers could have their loans forgiven after 20 years of repayment. Under SAVE, borrowers of $12,000 or less can have their debts erased after just 10 years of repayment.
What’s more, a borrower with $13,000 in loans doesn’t have to wait 20 years for forgiveness — just 11. Every $1,000 over the $12,000 mark just adds an extra year of required payments.
Borrowers with larger undergraduate loans may still qualify for forgiveness after 20 years of payments, while borrowers with graduate school loans may qualify for longer monthly plan terms. but have to wait 25 years for forgiveness.
The first two of these provisions ($0 payments and no interest) will go into effect soon. The last two will be effective in July 2024.
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SAVE is for student borrowers with federally held loans, including all direct subsidized, unsubsidized and consolidated loans, as well as PLUS graduate loans.
Those with Federal Family Education Loans (FFEL) or Perkins Loans held by a commercial lender must consolidate into a federal direct loan to qualify.
Parents who take out federal loans to help their children pay for college (known as Parent PLUS loans) are not eligible for SAVE.
Unlike the court-struck amnesty plan, SAVE is not a one-time measure but a permanent program. Future borrowers will be eligible for these benefits.
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But as was the case with the no-longer forgiveness plan, borrowers can’t receive SAVE benefits unless they apply. (Keep reading for some handy tips below.)
After three years of pause extensions, student loan payments are set to resume in October, with interest starting to accrue again in September.
Even without SAVE, repayment is a big undertaking for the Department of Education and student loan servicers — and it can be messy. In January, serious concerns were reported about funding shortfalls within Federal Student Aid (FSA), the Department of Education office tasked with managing the government’s student loan portfolio.
The Biden administration has not yet released a formal application for SAVE, saying the Department of Education will notify borrowers when it becomes
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