Navigating the complexities of student loans can often feel overwhelming. For borrowers enrolled in the Saving on A Valuable Education (SAVE) Plan, recent months have offered a temporary reprieve through administrative forbearance, which pauses both payments and interest accrual. While this break may provide short-term financial relief, it’s crucial to use this time wisely to prepare for repayment.
The U.S. Department of Education has announced that this forbearance will continue until at least September, with the first payments due in December 2025. This extended window presents an opportunity to either regroup financially or actively plan for repayment. Here’s what you need to know to make well-informed decisions and set yourself up for success.
What Is the SAVE Plan Forbearance, and How Did We Get Here?
The student loan forbearance is a result of legal challenges surrounding the SAVE plan.
Here are the key features of this administrative forbearance:
- Paused Payments: Borrowers are not obligated to make monthly payments during this period.
- No Interest Accrual: Loan balances remain frozen, with no additional interest added.
- No Negative Impact to Credit: With no payments required, borrowers avoid the risk of delinquency or credit damage.
Advantages of the SAVE Plan Forbearance
For borrowers, temporary forbearance provides a valuable opportunity to regain financial stability.
Here are the key benefits:
- Prioritize Essential Expenses
With loan payments temporarily paused, borrowers can allocate funds towards essential expenses like housing, healthcare, or childcare, ensuring their most pressing needs are met. However, it’s important to remember that this relief is only temporary, and repayment obligations will eventually resume.
- Pay Down High-Interest Debt
The pause offers a unique chance to tackle other costly debts, such as credit card balances or personal loans with high interest rates. Redirecting payments toward these obligations can lead to significant long-term financial savings.
- Build an Emergency Fund
The uncertainty surrounding repayment timelines makes this an ideal moment to bolster your financial safety net. By saving the money typically used for loan payments, you can prepare for unexpected expenses or future economic challenges. Many borrowers are choosing to place these funds in high-yield savings accounts, either to accelerate debt repayment once forbearance ends or to establish a robust rainy-day fund for the future.
Pitfalls of Relying Solely on the Forbearance
While these benefits are evident, borrowers should also consider the potential downsides:
- Lack of Progress on Loan Repayment
One significant drawback is that paused payments do not contribute to reducing the principal loan balance. Although interest hasn’t accrued during the pause, these months do not count as active repayment. As a result, borrowers may see their repayment terms extended by an equivalent amount of time they spent in forbearance.
- Potential for Higher Payments
When the SAVE Plan forbearance period ends, the plan itself will no longer be available as a repayment option. This could lead to higher monthly payments for some borrowers. Since the SAVE Plan likely offered the lowest monthly payments among Income-Driven Repayment (IDR) plans, switching to another IDR plan or moving to a Standard or Graduated repayment plan may result in an increase in monthly payment amounts. Borrowers should prepare for this potential adjustment.
What’s Next for Borrowers on the SAVE Plan?
The SAVE Plan may no longer be an option once your loan enters repayment, so it’s essential to explore alternative strategies. Here are three key steps to help you navigate this transition effectively:
- Stay Informed About Policy Changes
Student loan policies are constantly evolving at both the national and state levels. Staying up to date on legislative changes—such as changes to existing repayment plans or loan forgiveness programs—ensures you're ready to manage repayment.
- Leverage Tools Like Loan Simulators
Take advantage of resources like the Department of Education’s Loan Simulator to model repayment scenarios tailored to your income, career path, and outstanding debt. These tools can help you explore and compare repayment plan options and understand monthly payment amounts under different plans. By using these insights, you can make informed decisions about your repayment strategy.
- Explore Alternative Payment Plans
Research various repayment options beyond IDR plans, including Standard, Extended, and Graduated plans. While IDR plans might feel familiar, eligibility is not guaranteed. For instance, the Income-Based Repayment (IBR) Plan requires demonstrating partial financial hardship—if you don’t qualify, you’ll need an alternative.
If you’re pursuing Public Service Loan Forgiveness (PSLF), be sure to select a plan that allows you to continue progressing toward forgiveness. Careful planning now can position you for long-term success in managing your loans.
Preparing for the Resumption of Payments
Preparation is key when it comes to resuming student loan repayments. Here’s how you can take smart, proactive steps:
- Build a Repayment Fund
Since making payments will not progress your loan at this time, you may want to put that money you would have paid aside. It’s a great way to ease back into budgeting while ensuring you have funds ready when the pause ends.
- Reevaluate Your Budget
Incorporate future loan payments into your monthly expenses alongside existing financial goals. If adjustments are necessary, use this time to fine-tune discretionary spending and rebalance your budget.
- Seek Professional Guidance
Consider consulting a financial advisor or loan specialist to develop a personalized repayment plan. They can offer valuable insights into strategies like refinancing or early repayment and how these might work to your advantage.
Focus on Long-Term Financial Goals
Student loan forbearance isn’t just a temporary break—it’s an opportunity to position yourself for long-term financial success. Use this time to make thoughtful decisions, whether that means building financial stability, tackling other debts, or preparing for repayments. Stay informed and proactive in managing your loans.