Thousands of NC student loan borrowers face big changes. What to know as federal loan repayment ends

As a single mom, every dollar counted for Danielle Reynolds.

Reynolds, who lives in Fuquay-Varina, was the first person in her family to attend college. She  accumulated thousands of dollars of student loan debt and was making payments while raising her first daughter. 

When she opted into the Saving on a Valuable Education (SAVE) plan, the flexible student loan repayment program introduced under the previous Biden administration, Reynolds' monthly payment was reduced to less than $100.

Reynolds has since returned to school, but when she graduates later this year, she knows she'll be faced with a significant financial change. July 1 marks the end of the loan repayment plan. 

Aproximately a quarter million North Carolinians face significant financial decisions beginning in one week, with the SAVE student loan repayment plan sunsetting by summer's end. 

An income-driven repayment plan, SAVE differed from other repayment plans in how it calculates discretionary income and how much of it the plan "protects."

Under SAVE, discretionary income was calculated at 225% of the federal poverty amount, which is a higher percentage than other income-driven repayment plans. With less income considered discretionary, monthly payments were lower. For some individuals, monthly payments may have been as low as $0 a month.

Previous CNBC reporting at the time of the plan's launch also noted:

• If you make a monthly payment under SAVE, your loan won’t grow due to unpaid interest.
• Married couples who file separately won’t be required to include their spouse’s income in their payment calculation.

In 2024, the Biden administration announced it had approved $144 million in debt cancellation for 10,150 people in North Carolina through SAVE early loan forgiveness.

Starting July 1, borrowers will have up to 90 days to select a new repayment plan. The U.S. Department of Education recently announced there were still as many as 7 million Americans enrolled in the now-defunct plan, which had faced court challenges for years.

Borrowers who do not transition plans within the 90-day period communicated by their servicer will be automatically enrolled into either the Standard Repayment Plan, or the new Tiered Standard Plan,  which will be available beginning July 1.

Sabrina McGee, the partnership manager at Durham-based MDC, which facilitates the North Carolina Student Debt Relief Coalition, sat down with WRAL News to talk about the dilemma some borrowers face. 

McGee identified "default cliffs" that may impact borrowers in the coming months after July 1. 

"Experts have been talking about once we return to payments, we're looking at a default cliff," McGee said. "There are people whose addresses are changed, who didn't get the information [and] who didn't have never had to repay before. [There are people] who do not have the tools they need to repay their loans, and they'll be in default," she said. 

The National Consumer Law Center laid out what options SAVE borrowers have, including switching to another income-driven repayment plan:

• Income-Based Repayment (IBR), 
• Pay As You Earn (PAYE), and 
• Income-Contingent Repayment (ICR)

The caveat, though, is that PAYE and ICR will also be officially eliminated in 2028. The Repayment Assistance Program, which begins July 1, is based on annual gross income and does not calculate for discretionary income the way SAVE did. 

"RAP may be a good fit for you if you want to fully pay off your loans and you want to get any interest not covered by your monthly payments cancelled. However, RAP may not be a good option for you if you are low-income, because you may face higher monthly bills and be in repayment for a longer period of time before your loans are cancelled," writes the National Consumer Law Center. 

“For years, borrowers have been caught in a confusing cycle of uncertainty, but the Trump Administration’s policy is simple: if you take out a loan, you must pay it back,” said Under Secretary of Education Nicholas Kent in a news release from the U.S. Department of Education.