3 things you need to know about student loans this summer

Janice Chang for NPR/Janice Chang for NPR hide caption

toggle caption Janice Chang for NPR/Janice Chang for NPR

Student loan borrowers should keep an eye on their balances this summer, as big changes are coming. On July 1, millions of borrowers could see their monthly payments cut in half, but only if they’re enrolled in the correct plan.

Here are three things you need to know about what’s coming:

1. If you’re not enrolled in the SAVE plan yet, think about signing up

The SAVE plan is the administration’s revamped income-driven repayment, or IDR, plan. It was announced last summer and has already been a vehicle for the administration to deliver targeted forgiveness to some borrowers.

The SAVE plan exempts more of a borrower's income from the monthly payment than previous plans. And, under this program, interest no longer accumulates beyond what a borrower can afford to pay each month. Under previous plans, borrowers with low or $0 payments — too low to cover their monthly interest — still saw that interest grow. With SAVE, that stops.

Also, unlike past IDR plans, there is no eligibility income limit, and it works for many types of loans.

In July, borrowers with loans from their undergraduate education will see their payments cut in half. Monthly payments are currently calculated to be 10% of your discretionary income (above 225% of the poverty line), but in July that number will drop to 5%. Payments will be paused in July while the department does all the recalculations, but borrowers should see the new payment amount reflected in August.

Many borrowers will end up paying far less over time on SAVE than they would have on old plans. In fact, the department itself acknowledges that, under a previous plan for low-income borrowers, borrowers repaid, on average, $10,956 for every $10,000 they borrowed. Under SAVE, they will pay back just $6,121.

Not everyone agrees that the federal government should be forgiving that much debt. Republicans in Congress have been fighting to stop SAVE and, recently, some states have jumped in.

2. Court cases are hoping to dismantle the program. Keep an eye on Missouri

There’s a lawsuit in Texas and one in Missouri hoping to overturn this program. The cases argue that student loan servicers are being denied interest on certain types of loans.

The Missouri one makes a similar legal argument to that used in the case that saw the Supreme Court strike down the administration’s debt forgiveness plan in 2022. In talks with experts, it sounds like it’s possible this Missouri case will gain traction. But given the timing, it most likely won’t get in the way of this payment drop in July.

3. The Biden administration has already canceled billions of dollars in student debt

Though broad debt forgiveness failed in 2022, the administration has been chipping away at the nation’s $1.5 trillion student loan debt.

And much of that has been without application or action from borrowers. Often, borrowers logging in to their portal have seen their loan balance slashed or, in some cases, completely erased.

So keep an eye on your balance as always – millions of people have seen movement. It hasn’t been as flashy as the administration initially intended, but there has been targeted relief for borrowers with older loans, those with a heavy interest burden, people with lower incomes, those with disabilities, and public servants – close to 5 million people so far.