Federal student loan repayment is about to change in a big way. What borrowers need to know

When federal student loan borrowers resume their payments in the fall, they’ll find another repayment option available to them.

The U.S. Department of Education said borrowers can enroll in “the most affordable repayment plan ever created” later this summer, and before the over three-year-long pause on federal student loan payments concludes.

According to the Education Department, the Saving on a Valuable Education, or SAVE, plan, is an income-driven repayment plan that can cut borrowers’ monthly payments in half, and will leave many people with a $0 monthly bill.

“The SAVE plan is very generous to borrowers, almost like a grant after the fact,” said higher education expert Mark Kantrowitz.

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But there’s a catch: Some of these benefits won’t fully go into effect until next summer, due to the timeline of regulatory changes.

The new SAVE plan replaces one of the existing income-driven repayment plans, which cap borrowers’ bills at a share of their discretionary income with the aim of making the debt more affordable to pay off.

Instead of paying 10% of their discretionary income a month toward their undergraduate student debt under the previous Revised Pay As You Earn Repayment Plan, or REPAYE, plan, borrowers will eventually be required to pay just 5% of their discretionary income. Borrowers who make under $15 an hour won’t need to make any payments, the department says.

Kantrowitz provided an example of how monthly bills could change with the overhauled option.

Previously, a borrower who made $40,000 a year would have a monthly student loan payment of around $151. Under the SAVE plan, their payment would drop to $30.

Similarly, someone who earned $90,000 a year could see their monthly payments shrink to $238 from $568, Kantrowitz said.

Most borrowers should qualify for the plan as…