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WashingtonCNN –
A new federal student loan repayment plan could lower monthly payments for millions of borrowers.
The Biden administration rolled out the plan ahead of resuming student loan payments in October after a years-long pause caused by the pandemic.
The plan — known as SAVE (Saving on a Valuable Education) — calculates monthly payments based on the borrower’s income and family size and does not take into account the amount of student loan debt.
Use this calculator to find out what your monthly payment would be this year if you had enrolled in the new program.
Check out this interactive content on CNN.com
There are other federal student loan programs — called income-driven repayment plans — that similarly tie monthly payments to the borrower’s income and family size.
But low-income borrowers will likely receive the lowest monthly payment under SAVE.
Additionally, under the new plan, there will be no outstanding interest if a borrower makes a full monthly payment. This means that a borrower’s balance will not increase even if the monthly payment does not cover the interest accrued that month.
There is also a forgiveness component. Once the new repayment plan is fully implemented next year, some borrowers could see their remaining balance wiped out after at least 10 years of payments.
Most borrowers with federal student loans qualify for the new repayment plan, but that doesn’t necessarily make it the best option for everyone. Because the monthly payments are lowered, the loan may also take longer to pay back, potentially resulting in more being paid back over time, plus interest.
Borrowers can apply for the SAVE plan by submitting an income-driven repayment plan application on the Federal Student Aid website.
Once the new plan is fully implemented in July 2024, many registered borrowers will see their monthly payments cut in half.
This year, borrowers’ payments will be 10% of their discretionary income. But next year payments on loans taken out for undergraduate studies will be further reduced to 5% of disposable income.
Borrowers who receive loans from both undergraduate and graduate schools pay a weighted average between 5% and 10% of their income based on the original principal balances of their loans.
Payments under SAVE and other income-driven repayment plans are recalculated annually and adjusted for any changes in income or family size.
Generally, your monthly payment will increase if you get a raise or if you get married and your spouse has an income.
But married borrowers may be able to lower their monthly payment by filing their taxes separately, thereby excluding their spouse’s income from the calculation.