5 minute read
New Student Loan Repayment Plan: Saving on a Valuable Education (SAVE)
If you have federal student loans, you may be aware that there are a number of different repayment options available. They all seem to have their own acronym—like PAYE or IBR—along with unique features and eligibility requirements. Basically, they are complicated and confusing. Fortunately, the process of repayment is about to become much better. Now that COVID-related student loan forbearance is over, the federal government has revealed a new repayment plan. Because of its generous features, it has the potential to eclipse other options for most people, greatly simplifying your choice.
Lower Monthly Payments on the SAVE Plan
The new plan is called “Saving on a Valuable Education” (SAVE). It is an income-driven repayment (IDR) plan, so the amount of monthly payment is based on income and family size. A lot of IDR plans are already available, but SAVE currently determines monthly payments based on a smaller percentage of income than all of the other plans, and that amount will get even smaller when SAVE is fully implemented in July 2024.
The main factor taken into consideration is adjusted gross income (AGI) from your tax return. This works in your favor if you are in ministry because housing allowance is not included in AGI. That means ministers will have lower required payments than non-ministerial participants with the same take-home pay.
The main factor taken into consideration is adjusted gross income (AGI) from your tax return. This works in your favor if you are in ministry because housing allowance is not included in AGI. That means ministers will have lower required payments than non-ministerial participants with the same take-home pay.
The main factor taken into consideration is adjusted gross income (AGI) from your tax return. This works in your favor if you are in ministry because housing allowance is not included in AGI. That means ministers will have lower required payments than non-ministerial participants with the same take-home pay.
SAVE Plan Interest Benefit
SAVE features another benefit not available with other existing repayment plans. On current IDR plans, some people have very low monthly payments because their income is low. But large student loan balances and small monthly payments can result in payments that don’t even cover accruing interest on the debt. When this happens, even though payments are being made, the loan balance increases. In such situations, instead of getting out of debt, people are getting in deeper.
With the SAVE plan, this will never happen. If your monthly payment isn’t enough to cover accrued monthly interest, then, as long as you make the full payment, the government covers the rest of the interest. The bottom line: as long as you’re making payments, your balance will never grow because of interest.
Loan Forgiveness
With SAVE, the maximum repayment period for undergraduate loans is 20 years, 25 years if for graduate school loans. So after paying the required monthly payment for your maximum number of years, the remaining balance is forgiven. In July 2024, an additional benefit is expected to be implemented which allows borrowers with original loan balances of $12,000 or less to receive forgiveness after only 10 years.
For many pastors, public service loan forgiveness (PSLF) is also an option. PSLF is a program where the loans of those who work full-time for the government and nonprofits (like churches) can be forgiven after 10 years if they are on a qualifying repayment plan. The new SAVE plan qualifies for PSLF.
How It Could Impact You
What could this look like for you? Under SAVE, a family of four with an annual income of $60,000 would have a monthly payment of $0. I know many pastors fit this profile, especially when housing allowance is not included in income.
This means you could potentially pay $0 each month for 10 years if you qualify for PSLF and then have all loans forgiven. Even if you don’t qualify for PSLF, the loans could still be forgiven after 20 or 25 years. The downside is that you would have student loans hanging over your head for one or two decades.
You may want to pay off your student loans faster if being out of debt is a high priority and you can afford to do so. There’s nothing wrong with doing this. However, if money is tight on your minister’s salary, this could be a great option to free yourself of those monthly payments or greatly reduce them.
Learn more about SAVE using this QR code:
To change your repayment plan to SAVE, work directly with your student loan servicer or do it at studentaid.gov. This government website can help to explain what kind of repayment plan you are currently on and provide a lot of additional information. For more personalized help with student loans, you can check out the Institute of Student Loan Advisors, Student Loan Planner, or work with a financial advisor who is a Certified Student Loan Professional. While I am not a Certified Student Loan Professional, one of the financial planners at my firm is and has expertise in assisting clergy with student loans. If you’d like more information, contact me at the address below.
Amy Artiga is a Certified Financial Planner (CFP) and author of the clergy personal finance blog PastorsWallet.com
Send questions for Amy to benefits@nazarene.org
Note: This material is provided for informational purposes only. The author and NBUSA do not provide tax, legal, or accounting advice.
