When President Joe Biden introduced his student loan repayment plan Saving on a Valuable Education – better known as SAVE – some borrowers in the Bay Area like Melissa McDonough didn’t waste time figuring out if they could qualify for lower payments.
She’s a pediatric occupational therapist and works with kids with special needs at a K-12 school.
The SAVE plan reduces the percentage of personal income that borrowers must pay each month toward their student loan. Some could see their payments cut in half, while others could have their monthly payments set at $0.
Other income-repayment plans already offer a $0 monthly payment for some, but the SAVE plan lowers the qualifying threshold. For example, a single person earning $32,800 or someone with a family of four earning $67,500 will see their payments set at $0.
But what the plan doesn’t do is take into account where you live.
McDonough said she was already signed up for a repayment plan, but she was hoping with the SAVE plan, her payments would be reduced. They weren’t. Even with the SAVE plan, she was notified her monthly payments were $592.75. That’s the same amount she said she was set to pay with the original repayment plan she was on.
“I’m on the lower end of six figures,” McDonough said. “I’m only able to afford living in a 450-square-foot apartment with that salary.”
Per the California Department of Housing and Community Development, if someone is making $104,400 in San Francisco, Marin and San Mateo counties, they’re considered low-income. In Santa Clara, $96,000 is considered low income. In Alameda and Contra Costa counties, it’s $78,550.
“If you live in an expensive place like the Bay Area, DC, New York — places where people have a lot of student loan debt, places where people need higher education to kind of thrive in the job market often — it may be a little bit harder to qualify,” said Jacob Channel, senior economist at Lending Tree.
McDonough was born in the East Bay, went to school at San Francisco State University, and then moved to Texas for graduate school. She moved back to Contra Costa County a couple of years ago.
“I always knew that I wanted to help people and a friend told me about occupational therapy and I looked into it and I knew that was what I wanted to do,” she said.
Like many people in the Bay Area, she’s trying to make it, meaning finding ways to save and provide for herself.
Without her student loan payment, she said she’s already spending about $2,300 on bills every month. Taking into account her nearly $600 student loan payment, her expenses really start to add up.
McDonough has found creative ways to make space in her place like storing shoes under her couch as well as under her bed. Some of her furniture is also meant to save space. With all the bills, it can be hard to save up money.
When asked if she wants to buy a house one day, she said she doesn’t even think about that.
“Because at this point, I don’t see myself being able to afford a house,” she said.
Once payments restart, McDonough said she knows it will be on her mind more. But like many, she’s taking it day by day with the realities of living in the Bay Area.
Channel suggested planning ahead to get an idea of how much of your monthly budget will be taken up by loan payments.
“Log into your student loan account, figure out what you owe, start budgeting for your payments now,” Channel said.
Channel said it’s important to note that there are other programs that could help too.
“You should always talk to your lender. Even if you don’t qualify for the SAVE plan, you might qualify for something else similar like forbearance,” he said.
And while payments do resume in October, Channel said the Department of Education isn’t going to report missed payments to credit agencies for 12 months.
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