By: David Gourley, CSLP®
Before we begin, I want to address that anything dealing with student loans can feel very overwhelming.
There is a lot of information included below.
If you have questions on your personal situation and just want to chat, feel free to schedule a call using the button below. If you find this information helpful, CLICK HERE to subscribe to David's weekly newsletter.
This past week we found out that the $10,000/$20,000 of student loan cancellation was blocked by the Supreme Court.
While this news was hard to hear for many,
Those working towards PSLF are likely going to be in a better position now than they were before.
That’s because there was a new repayment plan that was announced at the same time as the blocked cancellation.
Today, I want to go through what this new repayment plan means for you…
And exactly what you need to do to take advantage!
Let’s dive in…
The new repayment plan is called “Saving on a Valuable Education” (SAVE).
It will replace the already existing REPAYE plan.
Here are the most important points of this repayment plan:
The SAVE plan increases the income exemption from 1.5x to 2.25x the federal poverty line.
*In layman’s terms, you will pay a lot less money towards your loans*
You will owe a $0 student loan bill if you are:
- A family size of 1 making $32,800 or less.
- A family size of 2 making $44,370 or less.
- A family size of 3 making $55,935 or less.
- A family size of 4 making $67,500 or less.
Anything you make from the exemption amount to your adjusted gross income (line 11 of your taxes), multiplied by .1 (10%) will be your yearly payment amount.
You can file your taxes separately and only include your income!
If you file separately, your spouse will not be considered part of your family size.
So, if you have a family of 4, you will only count as a family size of 3 on the exemption amount.
Which means you could only exclude $55,935 from your adjusted gross income…
Instead of $67,500.
But… you don’t have to include your spouse’s income,
Which can potentially save you a good chunk of money!
You will not have to pay additional unpaid interest.
This doesn’t really matter to anyone working on PSLF,
But it is great for those in the private sector.
Basically, this means that if $70 of interest accrues on your balance each month…
But your payment is set at $50,
Then you won’t be charged the remaining $20.
AKA, your loan balance won’t increase from interest!!!
Ok, let’s talk about action items:
- If you are in REPAYE currently, then you don’t need to do anything to get into SAVE. It’s automatic!
- If you aren’t in REPAYE, then you need to strongly consider switching repayment plans.
- Make sure you have all of your employment certification forms signed and sent in to Mohela from 2007 - present!
- If you have loans with different repayment history, you should do a consolidation of the loans before December 31st!
- If you do a consolidation, I always suggest getting a new set of employer certification forms. It will temporarily wipe out your repayment history, but having the ECFs in place will guarantee you come back up.
- Make sure you are optimizing for the future.
- For #2 - Current repayment is based off of 2019 tax information (unless you’ve consolidated since then or just started paying on your loans). If your income was much lower in 2019 and you were going to pay $0 on your current repayment plan, it might be best to stay…for everyone else, the move will make sense*
- For #4 - This will give you the longest repayment history on ALL of the loans!
- For #6 - Depending on where you are on the 120 credit journey, you can optimize to pay back substantially less than others. Set up a call below if you need help!*
Finally, there will be a 12 month on ramp period.
During this time, you won’t be penalized (or go into default) if you don’t pay your loans.
There can be some serious planning work done around this…
As you might be filed as married filing jointly,
But can save a ton of money by filing separately.
No problem, don’t pay until you get your taxes done next March!
Here are some questions I’m still wondering about myself:
- What date will borrowers be able to start moving to the SAVE repayment plan?
- If you don’t pay during the 12-month ramp up period, will it qualify for PSLF credits?
- How will the 5% for undergrad and 10% for graduate loans work if you consolidated the loans together?
The unfortunate thing…
Is that while they are trying to make student loan forgiveness easier for the masses,
It turns into a gigantic mess by the time it trickles down to the people.
If you are thinking…
“I don’t know where to even start”…
Then schedule a free call with me.
Bare minimum, you can find out more about your situation,
And I only ever charge if I can help you save substantially more than my fee!
Schedule now as my calendar has already gone crazy over the last few weeks!!!
As always, You Teach, We’ll Plan, You Retire!
David Gourley, CSLP® is a Financial Planner with Teach Plan Retire, an independent financial planning firm specializing in finance for teachers. He served for eight years as a high school mathematics teacher before transitioning into the financial services industry. He joined Teach Plan Retire in 2022 and his passion for serving as a fiduciary for teachers and a student loan planning expert runs deep, as his wife and several other family members have served as educators for years. He's a proud member of the Financial Planning Association of Greater Kansas City.