Written by 21:04 Business

Student Loan Bills Are Dropping Next Month for Many, but There’s a Hiccup

On July 1, millions of federal student loan borrowers will see their monthly bills drop — some by as much as half — as the Biden administration’s new income-driven payment plan, known as SAVE, takes full effect.

But first, the government and its four loan servicers have to resolve a major hiccup.

Starting next month, borrowers enrolled in the SAVE plan with only undergraduate loans will have their monthly payments capped at 5 percent of their discretionary income, down from the current 10 percent limit. (Graduate school loan payments will remain at a maximum of 10 percent, while people with a mix of undergrad and graduate loans will have a weighted payment.)

The loan servicers are relying on the Education Department to send them the new loan amounts for every borrower. But the department has not yet finished making calculations, according to three people familiar with the process, who asked for anonymity because they are not authorized to speak about the issue publicly.

To buy time, the department instructed its servicers to place borrowers with payments due in early July into an administrative forbearance for the month, which means no payment from them will be required.

More than eight million borrowers have enrolled in the SAVE plan. Many received notices this month saying that their account had been placed into forbearance, sparking widespread surprise and confusion.

“I was freaking out a little bit,” said Iván Barragán, who got a letter from his servicer, MOHELA, last week. “I thought I had done something wrong. Then I quickly went on Twitter and saw that a bunch of people were also getting the notices.”

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Last modified: 14 June 2024
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