Millions of federal student loan borrowers have received ‘Final Notice’ warnings as the government phases out the SAVE repayment plan. Borrowers have 30 additional days to select a new repayment option before loans transition to a fixed-payment plan.
The Transition from the SAVE Plan
The Department of Education has been moving borrowers out of the Saving on a Valuable Education (SAVE) plan following a federal court ruling in March. Notices started on July 1, providing borrowers 90 days to choose a new plan. Those who missed this window received a final notice.
“That final notice is basically the government saying, ‘Choose your repayment plan, or we’ll choose one for you.’ And borrowers probably won’t like the choice,” Michael Ryan, a finance expert, told Newsweek.
Loans enrolled in a fixed-payment plan may have higher monthly payments than SAVE, affecting borrowers’ budgets.
What Does the Final Notice Indicate?
The final notice serves as an additional warning. After SAVE ended, notices began in July informing borrowers they had 90 days for selection. Some received an extra 30 days to act.
Alex Beene, a financial literacy instructor, explained that borrowers must quickly select a new plan. Failure to do so results in automatic placement in a Standard or Tiered Standard Plan.
“Ignoring their loans risks significant credit score damage,” Beene stated.
Recommended Actions for Borrowers
Michael Ryan advised against ignoring the notice. Borrowers should verify eligible repayment plans using Federal Student Aid’s Repayment Calculator.
“Don’t assume the automatic plan is your best or cheapest option,” Ryan noted.
Ignorance may lead to a higher fixed-payment plan, challenging affordability.
Available Repayment Options
Repayment plans vary based on loan type and borrower circumstances. Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn are options. The Repayment Assistance Plan (RAP) is also available.
Fixed-payment plans like the Standard plan repay loans within 10 years, while Tiered Standard applies to 10-25 years, depending.
Failing to act may result in more costly repayments, increasing default risks, noted Kevin Thompson, CEO of 9i Capital Group.
Managing Financial Constraints
Borrowers struggling with new payments have options, including income-based plans. Loan servicers can offer alternate options or temporary forbearance.
“Consult with a professional to determine the best course of action,” Thompson recommended.
Consequences of Inaction
Not selecting a plan by the final deadline means automatic enrollment in a fixed-payment plan, despite avoiding immediate default.
Borrowers should remain informed and active in managing their student loan repayments to avoid financial strain.
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