With federal student loan payments set to resume soon, the Biden administration on Tuesday launched a new installment plan that offers more affordable monthly payments to low- and middle-income borrowers.

Dubbed the Saving on a Valuable Education plan, or SAVE, it’s a variation of the income-driven repayment plans that base monthly payments on what borrowers earn, not how much they owe. Under these plans, any amount a borrower still owes after 20 to 25 years of payments is forgiven.

In contrast, in a standard installment plan, borrowers pay higher monthly payments but wipe out their debt in 10 years.

The Department of Education began taking applications for the SAVE plan on Tuesday at studentaid.gov/idr. The plan is only available to borrowers with loans issued directly by the federal government.

The federal government suspended student loan payments and interest in early 2020 in light of the pandemic, but Congress ended the postponement as part of a budget deal lawmakers struck in June. According to the Department of Education, interest on federal student loans will rise again in September and payments are due in October.

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The SAVE plan initially requires borrowers to make monthly payments equal to 10% of their discretionary income, meaning 10% of the money they don’t need for housing, food and other necessities. That’s the same amount as in some other income-driven plans. But to make the payments more affordable, the income that is considered non-discretionary will be increased by 50%.

In other income-based plans, nondiscretionary income is limited to 150% of the federal poverty level, which translates to $21,870 for a single person or $45,000 for a family of four. With the SAVE plan, income up to 225% of the federal poverty level is considered non-discretionary and excluded from the calculation of monthly payments.

The result, according to the administration, is that a single borrower making less than $32,800 a year would have a $0 monthly payment. The administration estimates that more than 1 million borrowers fall into that category.

Another direct benefit: borrowers on the SAVE plan whose monthly payments are not large enough to cover the interest on their loan will

not

added that interest to their loans. Among other income-driven repayment plans, borrowers who stay current can still see their debt grow due to unpaid interest.

On July 1, 2024, the SAVE plan will halve monthly student loan payments to 5% of free income. According to the department, borrowers with both undergraduate and graduate student loans should pay between 5% and 10% of their discretionary income, based on how much they borrowed for each level.

Once the plan goes into full effect, it will also provide faster forgiveness for those who have borrowed less. Anyone who borrowed $12,000 or less would need ten years of repayment; for each additional $1,000 borrowed, 12 additional monthly payments are required.

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Parents who have taken out PLUS loans for their children are not eligible for the SAVE plan. Borrowers who have taken out Perkins and Federal Family Education Loan loans can enroll in SAVE if they consolidate their loans into a Federal Direct Consolidated Loan, but only if they do not include PLUS Loans to Parents in the package.

If you switch to the SAVE plan or another income-related installment plan, you will receive a credit for the monthly payments you made under your previous plan. You will also receive a credit for the months when payments were suspended during the pandemic.

The Department of Education says it will send borrowers a statement of account at least three weeks in advance, showing when their payment is due and how much they owe. So if you haven’t already, you’ll need to confirm your contact information on the Federal Student Aid website, studentaid.gov.

You should also determine which company manages your federal loan or loans so that you know who to pay. Find out

who manages your loan

go to your account at studentaid.gov and select the My Loan Servicers list, or call the Federal Student Aid Information Center at

(800) 433-3243

.

Then confirm how much you still owe and what the interest rates are on your loans. You can call your administrator to get the grades, or you can log into your account at studentaid.gov and view the grades there. Make sure the record shows all the payments you’ve made. If not, call your administrator and specify which payments are missing. And if that doesn’t solve the problem, file a complaint with the Education Department.