Federal student loan borrowers must select new repayment plan by October 1

Federal student loan borrowers enrolled in the SAVE repayment plan must select a new repayment option beginning July 1, according to a March 27 press release from the Department of Education. The SAVE plan, which reduced monthly payments and allowed forgiveness after as little as 10 years, was ended by a federal court ruling in March.

Approximately 7.5 million borrowers with an average balance of $39,075 now face new repayment choices.

Non-income-driven repayment plans The standard repayment plan requires fixed monthly payments over 10 years and generally results in the lowest total interest. A borrower in California earning $60,000 with no dependents would pay $636 per month under this plan.

The graduated repayment plan starts with lower payments that increase every two years over 10 years. The same California borrower would begin at $360 per month and rise to $1,080. Extended graduated and extended fixed repayment plans stretch payments over 25 years for borrowers with more than $30,000 in eligible loans.

Monthly payments are lower but total interest costs are higher. The tiered standard plan sets repayment length by loan balance, ranging from 10 years for balances under $25,000 to 25 years for balances of $100,000 or more. The California borrower with a $60,000 balance would pay $396 per month over 20 years.

Income-driven repayment plans Income-based repayment calculates payments at 10 or 15 percent of discretionary income depending on when the borrower first took out loans. Payments adjust annually with income and family size changes and count toward forgiveness after 20 or 25 years.