Millions of federal student loan borrowers are being sent "Final Notice" warnings as the government winds down the SAVE repayment plan, essentially giving affected borrowers another 30 days to select a different repayment option before their loans are automatically moved to a fixed-payment plan. The notices are the latest stage in the Department of Education's transition of borrowers out of the Saving on a Valuable Education, or SAVE, plan, which ended following a federal court order in March. Servicers began issuing notices on July 1 giving affected borrowers 90 days to select a new repayment plan, but borrowers who fail to act during that window are getting a final notice providing another 30 days, according to Federal Student Aid.
If borrowers still don't act, their servicer will automatically enroll their loans in a fixed-payment plan, which could produce substantially higher monthly bills than some borrowers paid under SAVE. More than 7 million borrowers were enrolled in SAVE, which based monthly payments on income and family size. The Education Department said in March that guidance about the transition would go to 7.5 million enrolled borrowers.
Federal Student Aid has warned that monthly payments under the Standard or Tiered Standard plans may be higher than under income-driven repayment. Experts say the final notice is essentially a second warning. After SAVE ended, servicers began notifying borrowers in waves starting on July 1 that they had 90 days to choose another repayment plan for which they were eligible.
Some borrowers reached that deadline only to discover they were being given another opportunity to act. Instead, you should check which repayment plans you qualify for before the final deadline rather than simply allowing your servicer to select a fixed-payment plan. For someone barely making ends meet, that increase could be the difference between staying current and falling behind.” Borrowers' options depend on their particular loans and circumstances.
Federal Student Aid says eligible borrowers can currently apply for or recertify under Income-Based Repayment, Income-Contingent Repayment and Pay As You Earn. The Repayment Assistance Plan, or RAP, also became available on July 1 as part of the broader overhaul of the federal student loan system. Borrowers also have fixed-payment options.
The Standard plan generally uses payments designed to repay eligible loans within 10 years, although Direct Consolidation Loans can have terms ranging from 10 to 30 years. Tiered Standard meanwhile applies to Direct Loans and has terms ranging from 10 to 25 years depending on the amount borrowed. Repayment plans based on income can lower their payments, especially if you have a lower income or larger family size.
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