Student Loan Repayment Strategies Expiring June 30, 2024 That Can Save You Money Now

I have been receiving so many requests from clients that need help with student loan repayment strategies over the past few weeks.  The IDR waiver expires on June 30, and the PAYE plan will no longer be available after this date. Many borrowers can obtain more months toward forgiveness if they take advantage of these before they expire.

The IDR waiver will offer credit for payments made under any repayment plan on federal direct student loans.  Prior to the IDR waiver, the borrower would only get credit for payments made under an income driven repayment plan. There will be a one time account adjustment where any payments made on these loans will count toward forgiveness.  For clients that have old commercially held FFEL loans, these will need to be consolidated before the deadline to get credit for payments on these loans. If clients consolidate any of these direct loans, not just the old FFEL loans, prior to June 30, they will receive payment counts toward forgiveness based upon the oldest loan that is included in the consolidation loans.  Why is this a big deal?  If you have loans from undergraduate study, and then go back for a graduate degree, medical school or law school, you could have loans that go back over seven years.  If you don't consolidate these loans, you would receive payment count toward forgiveness on each individual loan, meaning the newest loans might only get credit for a couple of years of payments, while the oldest loans could get credit for many more years that would get you closer to loan forgiveness. 

For example, a doctor with loans from 2010 from undergraduate studies might also have loans from 2018 for medical school.  By consolidating the loans, they would get credit for all payments made since 2010, which could be 14 years towards forgiveness. If they did not consolidate, the newest loans from 2018 would only have 6 years of payment count toward forgiveness. This could save them quite a bit of money if they were trying to obtain loan forgiveness.

After June 30, consolidation loans will receive payment counts based on the weighted average of loan payments on all of the underlying loans, as opposed to obtaining payment counts based on the oldest loan that was included in the consolidation loan.

The PAYE plan will not be available after June 30.  This plan allows loan forgiveness after 20 years, and the payments are calculated at 10% of your discretionary income. For borrowers with graduate loans, this could offer them loan forgiveness five years sooner than using the new SAVE plan, and could save them a substantial amount by not having to make payments for an additional five years. 

It is important for clients with student loans to pay attention to these deadlines, since it can reduce the number of years they have to pay on their student loans, and bring them that much closer to loan forgiveness.