SAVE student loan borrowers may have 90 days to switch plans

Federal student loan rules are changing on July 1, and millions of borrowers still in the defunct SAVE plan need to act soon.

More than 300,000 federal student loan borrowers have recently exited the Biden-era Saving on a Valuable Education, or SAVE, plan but millions more remain at risk as the July deadline nears. Their loan servicers will contact them around July 1, and they'll have 90 days to enter a new repayment option. Procrastination could limit their choices or lead to higher monthly payments under a standard plan, experts warn.

For borrowers trying to keep payments affordable — or continue making progress toward Public Service Loan Forgiveness or income-driven forgiveness — the key question is what to do before the transition happens automatically. The Department of Education is also changing which repayment plans are available after July 1, so this is one of those moments when checking your account and options now could make a difference.

SAVE borrowers should review their repayment options now

Experts urge borrowers to go to studentaid.gov now, review available repayment plans and not wait for the automatic transition. Stacey MacPhetres of Bright Horizons said borrowers are strongly encouraged to explore and apply for other income-driven plans before that deadline.

Otherwise, the government will choose a repayment plan for you that typically means higher monthly payments.

If you want forgiveness credit, staying in SAVE could be a problem

MacPhetres said borrowers in SAVE who are still making monthly payments should know those payments would not count toward Public Service Loan Forgiveness or income-driven repayment forgiveness.

She said existing borrowers can immediately switch to IBR, or income-based repayment, and that doing so would allow payments to count toward PSLF and IDR forgiveness. For SAVE borrowers focused on keeping that credit moving, that is one of the clearest action items.

For those who aren't making payments, interest continues to pile up, she said.

Automatic enrollment could mean a less favorable payment plan

If SAVE borrowers do not act, the Education Department will automatically enroll some borrowers into one of the new plans launching July 1.

Likely, the Department of Education will auto-enroll you into its default standard repayment plan. The plan offers fixed monthly payments over a set period of time, ensuring your loan is completely paid off by the end of your term. The idea is you pay less interest over the life of your loan, but the payments are fixed and possibly, more than what you pay now, no matter what your income is.

Your choices narrow after July 1

Several current repayment plans are being phased out or closed to new borrowers after July 1.

Enrollments for income-driven plans Pay as You Earn (PAYE), Income-Contingent Repayment (ICR) and Income-Based Repayment (IBR) will be cut off for loans disbursed on or after July 1. Existing IBR plans are grandfathered for older loans.

Starting July 1, only two repayment plans will be available to new borrowers: the Standard Repayment Plan and the Repayment Assistance Plan, or RAP. RAP is an income-driven plan with payments ranging from 1% to 10% of adjusted gross income, or $10 a month for people making less than $10,000 a year, with forgiveness available after 30 years of repayment.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.