Student loan bills may soon see ‘a dramatic drop,’ expert says. Here’s what to know about the change

Personal finance

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Your student loan bill may get smaller next month.

Here’s why: A feature of the Biden administration’s latest income-driven repayment plan that will reduce millions of borrowers’ monthly payments kicks in on July 1.

For some borrowers, “it’s a dramatic drop,” said higher education expert Mark Kantrowitz.

Last summer, President Joe Biden rolled out the new program, called the Saving on a Valuable Education, or SAVE, plan, describing it as “the most affordable student loan plan ever.” So far, around 8 million borrowers have signed up for SAVE, according to the White House.

Under IDR plans, borrowers pay a share of their discretionary income each month and receive forgiveness after a set period, typically 20 years or 25 years. SAVE replaced the U.S. Department of Education’s former REPAYE option, or Revised Pay As You Earn plan.

Some enrollees have already benefited from reduced bills because the SAVE plan increases a borrower’s income exempted from their payment calculation to 225% of the poverty line, up from 150% under REPAYE. As a result, single borrowers earning less than $33,900 or a family of four making less than $70,200 who are enrolled have seen their monthly bill fall to $0.

But the most generous provision of the program that will soon go into effect slashes the share of discretionary income borrowers have to pay toward their undergraduate student debt each month to 5% from 10%. (Parts of the plan went into effect at different times due to complicated rules around regulatory changes.)

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A person making roughly $50,000 a year with a previous student loan payment under REPAYE of around $228 will now have a monthly bill of $67, according to a calculation from Kantrowitz.

Meanwhile, someone earning $125,000 will see their bill fall to $380 from $853, he said.

(Under IDR plans, a borrowers’ monthly payment isn’t impacted by their loan balance, just the details of their plan and income.)

Reduced bill should be automatic

As long as you’re already enrolled in the SAVE plan, you should see the decrease automatically reflected in your July bill, Kantrowitz said.

Borrowers who have both undergraduate and graduate student loans will pay a weighted average of between 5% and 10% of their income, the Education Dept. says.

To qualify for a lower payment under the SAVE plan, your total debt will generally need to be greater than a third of your annual income, Kantrowitz said. Borrowers can apply for the program at

Some borrowers, including those who borrowed $12,000 or less, will receive loan forgiveness in as few as 10 years under the plan. Any payments that have already been made under an existing IDR plan or the Standard Repayment plan will count toward the borrower’s timeline to relief.

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