The federal government is working to recalculate a cheaper monthly payment through a new formula.
Millions of federal student loan borrowers may skip their monthly payments in July while the federal government recalculates their bills.
In August, the U.S. Department of Education rolled out the SAVE Plan, an income-driven repayment (IDR) plan aimed at making payments more affordable for low-income borrowers with a shorter timeline toward the eventual discharge of their remaining balances.
The Education Department already started implementing some of SAVE’s “most generous” offers ahead of schedule, including debt cancellation for borrowers who originally took out $12,000 or less in loans and have made at least 10 years of monthly payments. It also brought 4.6 million borrowers’ monthly payments down to as low as $0.
Starting July 1, a new repayment formula for borrowers enrolled in the SAVE Plan will go into effect. This formula update allows borrowers with undergraduate loans to have their monthly payments capped at 5 percent of their discretionary income, which is down from the current 10 percent limit.
The change means that borrowers with only undergraduate loans will get their monthly bills slashed by half. Borrowers who have graduate school loans will also see a reduction to their payments if they have undergraduate loans as well, and the amount of the reduction will depend on the proportion of their graduate and undergraduate student loan debt.
To make sure loan servicers have enough time to make the recalculations, the Education Department has placed all borrowers who will be affected by the new formula on an “administrative forbearance.”
“As the Department finalizes preparations with student loan servicers to implement borrowers’ new, lower monthly payments capped at 5 percent for undergraduate loans under the SAVE Plan, some borrowers may be placed in a brief processing forbearance to ensure they can access the full benefits of the SAVE Plan and that their new payment amounts are accurate,” a spokesperson for the Department told The Epoch Times in an emailed statement.
Since borrowers typically get their bills a few weeks before the due date, this one-month forbearance period will help prevent borrowers from making a larger payment than necessary before the federal government determines a new, lower amount.
By Bill Pan
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