Starting in July, an even bigger perk of the plan will be available.
Instead of paying 10% of your discretionary income a month toward your undergraduate student debt under the previous Revised Pay As You Earn Repayment Plan, or REPAYE, borrowers will be required to pay just 5% of their discretionary income. The SAVE plan has replaced REPAYE.
Kantrowitz provided some examples of how much borrowers could see their bills drop.
Previously, someone who made $40,000 a year would have a monthly student loan payment of around $151. Under the SAVE plan, their payment would fall to $30.
Similarly, someone who earned $90,000 a year could see their monthly payments shrink to $238 from $568, Kantrowitz said.
In the past, most mortgage lenders assumed that a borrower’s monthly student loan payment was a certain percentage of their loan balance, even if the actual payment was lower, Kantrowitz said.
Fortunately, he said, “They now base it on the actual loan payment.”
There’s one catch: Many mortgage lenders won’t use a $0 monthly student loan payment in their underwriting process, which the SAVE plan could leave many borrowers with. In such cases, lenders may still calculate your monthly obligation as a share of your total debt.
The Center for Responsible Lending wants to see this change.
“By not counting their monthly payments as $0 in the underwriting process, lenders are artificially inflating consumers’ monthly debt obligation,” Bamona said. This could potentially prevent millions of low-income Americans from getting a mortgage, she added.
Saving for a down payment may be easier under SAVE
The SAVE plan may also help more people get in financial shape to buy a house, experts say. That’s because a smaller monthly payment could enable them to direct more cash to their savings, and reach their down payment goal faster.
Student loan borrowers who are first-time homebuyers may also be eligible for financial assistance, Bamona said, and should research their options.
“Grants or down-payment assistance programs may be accessible to first-time homebuyers, provided by agencies and organizations within their state or municipality,” she added.
Related Links
If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.
Search Homes in Colorado
Search Homes in North Carolina
Search Homes in Oklahoma
Search Homes in Oregon
Search homes in Minnesota
