After three and a half years, it looks like student loans are actually going to go back into repayment in a couple of months.
I wrote about the student loan pause last year and how I expected it to get extended again after it was scheduled to end in August of 2022. It turns out that it didn’t get extended for just a few more months, but for an entire extra year!
After such a long pause, many borrowers have put themselves in a position where they don’t have extra money each month to make their payments when repayment resumes. To ease some of the pain, the government attempted to give a lump sum in loan forgiveness ($10,000-$20,000) to borrowers, but this ruling was overturned by the Supreme Court. In another attempt to reduce the burden on borrowers, the government has now introduced a new income driven repayment plan that is supposed to be more generous than current repayment plans for cash-strapped borrowers. The Saving on a Valuable Education (SAVE) Plan is slated to take the place of the Revised Pay As You Earn (REPAYE) plan once payments restart.
As long time readers know, I’ve been a big proponent of the REPAYE plan for travel therapists for many years now. I’ve used this plan, via the 50% interest subsidy, to significantly reduce the effective interest rate on my loans while maintaining a $0 student loan payment for several years. This is a unique opportunity available to travel therapists due to our reduced adjusted gross income (AGI) since part of our pay is untaxed. By going this route, paying $0/month, and investing the money I would’ve used toward student loan payments instead: I’m ahead financially by tens of thousands of dollars since graduating PT school. Overall, I’ve been very happy with the REPAYE plan and the benefits it gives to borrowers, especially travel therapists.
If you’re new to this topic and are unsure if going on an income driven repayment plan is the right choice for you, vs. a standard repayment plan or aggressively paying your loans off as quickly as possible, I would recommend reading some of my prior posts on this topic to help you better decide, such as this one: Is it Better to Pay Off Student Loans or Invest?
So, is REPAYE being replaced by SAVE a good or bad thing for travel therapists on income driven repayment plans? Well, the changes are overwhelmingly positive, but there are some negatives as well.
Benefits of SAVE vs REPAYE
Let’s start with all of the positive changes coming with the switch from REPAYE to SAVE.
- Payments will be lower
- On REPAYE, your monthly payment was based on any taxable income you made over 150% of the federal poverty line. 10% of any income you earned over 1.5 times the federal poverty line was how much you would have to pay each year, with that amount being split into 12 equal monthly payments. That applied to both undergrad and grad school student loans.
- On SAVE, payments will be lower because they are based on 225% of the federal poverty line instead of 150%. The same 10% over that level will apply to grad school loans. But for undergrad loans, your payment will be based on only 5% of your income over 225% of the poverty line. For borrowers with a mix of undergrad and grad school loans, what you owe will be based on a weighted average of the loan balances. The 5% of discretionary income for undergrad loans isn’t scheduled to go into effect until July 2024 though.
- Interest won’t accumulate
- The thing that made the REPAYE plan so powerful for travel therapists was the interest subsidy. Half of any interest that would have accumulated each month was automatically subsidized. That meant that if you had a $0/month payment, your effective interest rate was essentially cut in half since 50% of the interest was immediately forgiven instead of added to your loan balance.
- On SAVE, this benefit gets way better! Now, 100% of any accumulated interest is forgiven automatically each month, meaning that if your payment amount isn’t enough to cover the interest, it doesn’t matter because that interest won’t be added to your balance. Now, if you have a $0/month payment, your student loan balance won’t grow at all, and you’ll effectively have a payment-free, interest-free loan. Those $0 payments will still count toward the 25 years of payments needed for student loan forgiveness as well.
- For anyone on SAVE with a low income (or in the case of travel therapists, a low AGI), it will basically feel like the student loan pause has just been extended indefinitely. $0 payments, no interest accumulating, and progress toward loan forgiveness. That’s very generous!
- Married filing separate won’t include your spouse’s income
- Under REPAYE (unlike the Pay as You Earn Plan), if you were married, whether filing jointly or separately, your spouse’s income and student loan balance would be taken into account when calculating how much you owe each month on your student loans. For most people, that meant a higher monthly payment.
- With SAVE, if you file your taxes separately from your spouse, then your payment will be calculated only based on your income, which will be a benefit for some.
- Some loans will be forgiven more quickly
- This won’t apply to many travel therapists, but if your initial student loan balance was $12,000 or less, it will only take 120 monthly payments to qualify for student loan forgiveness instead of the normal 300 monthly payments. Each additional $1,000 in loans over $12,000 will require an additional year of payments to achieve forgiveness. For all of us with more than $27,000 in student loans, it will still take 300 monthly payments to qualify for student loan forgiveness just like under the REPAYE plan, so no real changes there for most travel therapist borrowers.
Downsides of the SAVE Plan
So those are pretty awesome positive changes, but what about the negatives?
- You won’t be able to switch plans
- As of July of 2024, you will no longer be able to switch to the Pay as You Earn (PAYE) plan. Part of the rollout of SAVE is making choosing a student loan repayment plan easier for borrowers. This means reducing the number of choices and subsequently the elimination of the PAYE plan. Anyone already on PAYE will be able to continue on the plan though.
- Why does this matter? Currently on REPAYE, you can freely switch between repayment plans, and all of your payments made on the other plan still count toward loan forgiveness. That means theoretically you could make 19 years of payments on REPAYE, getting the benefit of the interest subsidy during that time, and then switch to PAYE on year 20 and get forgiveness after 20 years instead of having to wait until 25 years like you would on REPAYE. This was a loophole that I always thought would eventually get closed, and it looks like that time has come.
- It is also proposed that after 5 years of payments on the SAVE plan, you wouldn’t be able to switch to a different repayment plan, further limiting options. For travelers, REPAYE made sense due to the interest subsidy while traveling and having a lower AGI. But once not traveling anymore, there are many situations where PAYE would be better due to the shorter amount of time to loan forgiveness, and potentially a higher payment due to AGI going up at a permanent job (no tax free stipends). In the past, you could get the best of both worlds by staying on REPAYE while traveling, and then switching to PAYE once you settle into a permanent job, but now that won’t be an option.
- For some travel therapists, especially those who don’t plan to travel long or who don’t plan to contribute heavily to pre-tax retirement accounts to lower their AGI when they’re back at a permanent job, PAYE could be a better repayment option than SAVE while it’s still available.
- No cap on payment amount
- This isn’t actually different than the REPAYE plan, but it’s something to be more aware of now that PAYE will be going away and you won’t be able to switch plans after five years.
- On SAVE, if your income increases significantly, there is no cap as to how high your payment can go, whereas on PAYE it is capped at your 10 year standard repayment monthly payment amount. This won’t apply to many people, but if in the future your income is very high, you may find that your student loan payment is much higher than you expected. If that happened on REPAYE, you could have just switched to PAYE to lower the payment, but now that won’t be an option in the future while on SAVE.
- Future uncertainty about repayment plans
- This will be the first time that a student loan repayment plan has been completely replaced by a new plan. That will set a new precedent that big overhauls of repayment plans are possible. Although the changes with SAVE are mostly positive, future changes may not be. If a future president comes in who is much more fiscally minded and thinks SAVE is too generous, it’s possible they could change SAVE into a new plan with worse terms than REPAYE had by executive order. Or, maybe they switch the terms of the plan back to how they were on REPAYE, but now without the ability to switch to PAYE in the future since that plan is gone. Although this is probably pretty unlikely, there’s no doubt that these changes introduce this possibility which didn’t really exist before.
Does SAVE Make Sense for Travel Therapists?
Overall, these changes are pretty awesome. If you’re a travel therapist who is able to get your AGI below about $33,000, on SAVE you’ll have $0/month payments and no interest accruing for the entire time you’re traveling. If you contribute some money to a traditional IRA, 401k, or HSA each year, then having a $0/month payment shouldn’t be hard to achieve at all now, whereas previously having to get below $20,000 AGI on the REPAYE plan to achieve a $0/month payment was difficult for some. Having essentially an interest-free loan with no payments due while traveling makes paying down student loans quickly even less beneficial than before for most travel therapists. Not having to account for your spouse’s income is also a pretty big benefit for married travelers who are willing to file separately. This is very applicable for me and Whitney this year.
Not being able to switch off of the SAVE plan after making five years worth of payments and having PAYE no longer be an option after next year could really be a detriment to some travelers though. Being locked into five extra years of payments (on the 20 vs. 25 year plan) before reaching forgiveness could come back to bite, especially if those last five years are really high earning years for you with no cap on payments.
There will be no one size fits all answer here since most of the choice between SAVE and instead going on PAYE will now depend on what you plan on your life looking like after you stop traveling.
If you plan to transition straight from travel to semi-retirement and then to early retirement like me, or to just do part time work after traveling, then keeping your AGI low to continue to get the benefits from SAVE won’t be an issue, and SAVE will be an awesome option for you.
If you plan to eventually transition to a much higher paying permanent job or open your own clinic with high earning potential after you stop traveling, then you may end up being better off on PAYE and forgoing the interest subsidy on SAVE while traveling.
There’s also the option for some with a reasonable student loan balance to go on SAVE while traveling to take advantage of the interest-free loan, and then just switch to a standard 10 year repayment plan after traveling or aggressively pay off the loans ASAP to get rid of the debt and not worry about forgiveness at all. I can see that being a much more reasonable option now for some.
If you’re planning to work at a non-profit for 10 years in order to get Public Service Loan Forgiveness (PSLF) after traveling, then SAVE would be a good option for you due to the lower monthly payment and the extra 5 years of payments not being a factor.
Overall, I think SAVE will be the best choice for most travelers, but certainly not all.
Summary and Considerations
As you can see, lower payments and no interest accumulation on student loans are very generous new benefits on the SAVE plan. Because of this, many more people, not just travel therapists, will chose to go on SAVE instead of paying off their student loans quickly. Additionally, people already on an income driven repayment plan will now pay back less over the life of their loans.
For this reason, I’m pretty confident that this new repayment plan will be challenged in court, and the changes could end up being overturned. This is exactly what happened to the proposed $10,000-$20,000 in partial loan forgiveness from last year. I’ve waited a long time to write any update about student loans because things have constantly been in flux and uncertain. To a degree, that’s still the case now. But hopefully that doesn’t happen and everything goes through as proposed with the new SAVE plan.
Since switching plans will be less feasible on SAVE, it’s more important than ever to put a lot of thought into your personal situation and future before making a choice on which student loan repayment plan to choose. Before, it wasn’t a big deal if you chose a less optimal path because you could always switch later, but now the consequences are greater. It’s vital to do some calculations to determine what will be the best choice for you over the long term and not just choose SAVE to have a low payment and no interest accumulation while traveling without considering your future after traveling. If that’s not something you’re comfortable with doing on your own, then FitBux is a great place to go make an account and schedule a call with an expert who can help. This is an invaluable resource for all student loan borrowers.
Personally, I will most likely go on the SAVE plan due to the lower payments and enhanced interest subsidy, but I am going to have to put some extra thought into it before making my final decision now than switching to PAYE won’t be possible after next year.
Do you plan to go on the new SAVE plan? Let me know your thoughts in the comments!
If you have questions about travel therapy or student loan repayment options for travel therapists, feel free to send us a message. We also have additional resources you can check out below!
If you’re interested in getting started as a travel therapist, check out our free Travel Therapy 101 Series and get connected with the best recruiters by filling out our Recruiter Recommendation form.
- Is it Better to Pay Off Student Loans or Invest?
- Travel Therapist Student Loan Forgiveness
- Paying $0 in Federal Taxes and $0 in Student Loans Payments as a Travel Therapist (2021 Update)
Written by Jared Casazza, PT, DPT – Jared has been a traveling physical therapist since 2015. He has become an expert in the field of travel healthcare through his experience, research, and networking over nearly a decade.