Dave Ramsey: Why the SAVE Student Loan Repayment Plan Is ‘Awful’

Dave Ramsey headshot

Financial guru Ramsey recently argued that President Joe Biden’s Saving on a Valuable Education (SAVE) plan will not help student loan borrowers — Ramsey went so far as to deem the plan “awful” during his show.

Check Out: This Is the One Type of Debt That ‘Terrifies’ Dave Ramsey

“I didn’t think it was possible with the epic student loan debacle for it to get any dumber out there but it has,” Ramsey said on the show.

When it was announced last year, the administration said the SAVE Plan provides the lowest monthly payments of any income-driven-repayment (IDR) plan available to nearly all student borrowers. Ostensibly, the plan would replace the Revised Pay-As-You-Earn (REPAYE) plan.

Learn More: 10 Expenses Most Likely To Drain Your Checking Account Each Month

Sponsored: Owe the IRS $10K or more? Schedule a FREE consultation to see if you qualify for tax relief.

Student Loan Payments Cut Under the SAVE Plan

Under this plan, monthly payments are cut to $0 for millions of borrowers making $32,800 or less ($67,500 for a family of four) — and the plan saves all other borrowers at least $1,000 per year, according to the Education Department.

Another change is that the SAVE plan increases the income exemption to 225% of the poverty line, up from 150%. Additional benefits will go into effect in July 2024, including the fact that payments for borrowers with only undergraduate student loans will be cut in half. These payments, capped at 10% of discretionary income, will decrease to 5% of the discretionary income in July, according to the Department of Education.

Yet, Ramsey argued that “While the SAVE plan seems like it’s doing you a favor, it’s really not.”

“Remember, smaller payments mean smaller progress on your student loans. So, IDRs like this one only drag out your debt for longer. If you do get enrolled in this plan, you’ll still want to aim to pay more each month!” an article on Ramsey Solutions indicated.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: Dave Ramsey: Why the SAVE Student Loan Repayment Plan Is ‘Awful’