Get ready for a budget shock. You knew it was coming – the onset of student loan repayments. But did you realize what a dent it was going to make in your budget? A new study just released by TransUnion – the credit bureau, has details. And it shows that the burden of resuming debt payments may be the straw that derails the Fed’s soft economic landing.

On the other hand, there is a new program called the SAVE – Saving on a Valuable Education — that could offer dramatic cuts in current payments (some to zero), and lead to eventual forgiveness.

Growing Debt Impact
TransUnion knows how much you owe on your student loans. And they also track your other outstanding credit accounts – mortgages, credit cards, and car loans. Their new report reveals that during the three years of suspended payments, many borrowers racked up a lot of other debt.

Here are the scary numbers:
• As of May 32, 2023, 40.6 million consumers possessed student loans. (Or were possessed by them!)
• Approximately 26.8 million of these borrowers (with total debt of $1.1 Trillion) will be required to resume payments. (Remember, private student loan borrowers did not have a moratorium.)
• One in five (20%) of those borrowers will have to add a payment of $500 or more every month.
• Half of the borrowers will now have a payment of more than $200 a month.

Adding to the debt burden, more than half of those student loan borrowers added a new credit card during the moratorium, while 36% took on an auto loan! And 15% took out a new mortgage, while another 15% took out a personal loan. (The numbers overlap because many borrowers took out more than one form of new debt.) Those consumers will be stretching their budgets and cutting their shopping this holiday season.

New Hope in Dealing with Debt
There is still hope for some of those borrowers, who may qualify for reduced monthly payments under income-based repayment plans, according to attorney and student loan advisor Rae Kaplan. Her firm (www.financialrelief.com) is being overwhelmed by borrowers hoping to lower those payments and see if they qualify for the latest deal.

Kaplan explains that the new Federal SAVE plan, (which replaces the previous REPAYE plan), will cut most monthly payments in half. And as long as borrowers are enrolled in this plan, no interest will accrue on their loans!

This new regulation issued by the Department of Education is based on the previously authorized statute for income-contingent repayment plans. They are starting to automatically transfer borrowers enrolled in REPAYE into this new plan. Or you can apply now.

Anyone who took out a loan in 2014 or later will qualify – with the exception of Parent Plus loans. Your repayment status over those previous years is not an issue, so if you were in default or deferment, you may still qualify.

The new SAVE repayment plan allows a greater percentage of income to be sheltered before counting it to establish your monthly payment. And it excludes spousal income from all calculations, regardless of how you file taxes.
Instead, it uses your own adjusted gross income, minus 225% of the poverty index rate for a family of your size. Then it caps payments at 5% of this “gross discretionary income” figure.

So, a single borrower making less than $32,805 would not have to make any loan payments as long as their income stays below this level. A family of four earning $67,500 or less would also qualify for zero monthly payments.

Undergraduate loans are forgiven after 20 years in this payment plan, even though — assuming you continued to qualify — you never made a payment! Graduate loans are forgiven after 25 years.

But complexity arises around issues like consolidating older loans, and receiving credit under the IDR account adjustment – a forgiveness program that ends at year-end 2023.

My columns are designed to simplify financial matters. But there are so many details and quirks in this new program that I strongly advise seeking professional help. First, go to StudentAid.gov to verify your loan details and identify your servicer, since many have changed since payments were last required.

Next stop is FinancialRelief.com or another legal specialist to get the details done right. It could save you a fortune. And that’s The Savage Truth.