What Should Student Loan Borrowers Consider When Looking at New Repayment Options?

Student loan borrowers who have been in a holding pattern now have new options for their payment plans.

Ongoing lawsuits have placed millions of borrowers enrolled in the Saving for a Valuable Education (SAVE) plan into forbearance and thrown student loan forgiveness initiatives into limbo. Because of this, borrowers may want to switch to a recently reopened repayment plan for more stability or a path toward forgiveness.

Investopedia spoke with Alyssa Schaefer, general manager and chief experience officer at Laurel Road, a digital banking platform specializing in student loan counseling and budgeting. Schaefer discussed what borrowers should keep in mind when considering changing repayment plans. The interview has been edited for brevity and clarity.

INVESTOPEDIA: Why would a borrower enrolled in the SAVE repayment plan want to switch to another plan?

ALYSSA SCHAEFER: One of the main reasons why you wouldn’t want to stay in SAVE and continue to be under forbearance is because, under the SAVE program, that time period that you’re in forbearance doesn’t actually count toward your forgiveness period.

For example, if you are in the Public Service Forgiveness Loan (PSLF) program, your forgiveness period can be 10 years. If you’re in an income-driven repayment (IDR) program, it could be 20 to 25 years, depending on the program.

INVESTOPEDIA: What should borrowers look at within their own finances before deciding on a repayment plan?

SCHAEFER: In general, if you’re sitting down and thinking about what payment plan may be right for you, you want to think about number one: your income growth potential. So this is often overlooked, and it’s difficult to know in advance, but you may want to really think about what’s the most likely scenario.

So, for example, if you’re a resident doctor, not making much money, but you have the potential to make much more money, you want to think about how that’s going to impact your student loan.

Number two, you want to think about your loan balance, how much you have to pay off, and how quickly you’re going to be able to pay that off. So, for example, if you’re paying off your loan, and you’re probably going to be able to pay your loan off sooner than 10 years. You want to think about the fact that an ICR program may not make sense for you because that has a much longer forgiveness period.

You might want to think about some of your life decisions, and not that you would change your mind about any of those life decisions, but how they’re going to impact your student loan payments.

If you’re getting married, for example, and you’re marrying a high-income earner, this could impact your payment to your student loans if you’re going to file taxes jointly because that income will be combined with your income. Then, if you’re in the ICR program, it’s going to calculate that 20% onto your total income. 

Lastly, I would say that because of all these nuances, we always advise people to work with an expert—somebody who knows these programs deeply and has worked with hundreds and thousands of borrowers, giving them advice about the best plan. Every situation is very different.

Our biggest advice is that borrowers should really make rational decisions and not do things in a rushed way. Take your time with it. Look at your finances carefully. Look at your options carefully. Talk to an expert.