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After years of paused federal student loan payments in response to the COVID-19 emergency, payments are starting up again. Interest charges started accruing in September, with first payments due in October.

While some borrowers are financially prepared to make their payments, not all are. If you’re worried about your upcoming federal student loan payment, you have options. A couple of student loan relief programs — the SAVE Plan and on-ramp period — are available to help eligible borrowers ease back into their payment obligations.

SAVE Plan

The Saving on a Valuable Education (SAVE) Plan is a new income-driven repayment (IDR) option that offers the lowest monthly payments among all IDR plans to a wider group of borrowers. In fact, under this repayment plan, more borrowers qualify for a $0 monthly payment.

It replaces the existing Revised Pay As You Earn (REPAYE) Plan and those who are on REPAYE will automatically be transferred to SAVE.

How Does the SAVE Plan Work?

The SAVE Plan offers various benefits that offer immediate relief, although the full advantages of SAVE rolls out in two parts. The second wave of benefits is expected to go into effect in July 2024.

Like all IDR plans, SAVE calculates borrowers’ monthly payments, based on their income and family size. The main advantage of SAVE, however, is its increased income exemption for the payment calculation.

Other IDR plans determine your discretionary income by calculating the difference between your annual income and 100- or 150-percent of your state’s poverty guideline for your family size. The SAVE Plan raises the exemption from REPAYE’s 150 percent of the poverty line to 225 percent. This results in more eligible borrowers having a calculated monthly payment of $0.

If you qualify for a $0 monthly SAVE payment, you’ll need to recertify your income and family size. The SAVE Plan lasts 20 or 25 years, depending on whether you have undergraduate or graduate debt. After the plan term ends, your remaining balance is forgiven.

Other SAVE Plan features

•   Any unpaid interest accrued each month is entirely subsidized by the Department of Education.

•   Married borrowers can also now exclude their spouse’s income from the plan’s payment calculation. Not having to report your spouse’s income improves your chances at a lower payment.

Some borrowers who are enrolled in SAVE can also look forward to even lower payments 2024 when the remaining benefits are enacted.

Firstly, the program provides a fast track toward student loan forgiveness which also goes into effect. For example, borrowers whose original principal balance was $12,000 or less and have made 10 years of payments will have any remaining balance forgiven.

Other benefits include being automatically enrolled in IDR after 75 days of non-payment thus avoiding delinquency, and receiving credit for past months of non-payment, like during forbearance, which usually don’t count toward forgiveness.

SAVE Plan Eligibility

The only eligibility requirement for enrolling in the SAVE Plan is that you must have eligible student loans, and the loans can’t have been a parent PLUS Loan.

Eligible loans include Direct subsidized and unsubsidized loans, graduate or professional PLUS loans, and Direct Consolidation Loans that don’t include parent PLUS Loans.

If you choose to undergo a Direct Consolidation Loan first, the following federal loans might also be eligible:

•   Federal Perkins Loans

•   Subsidized and unsubsidised Stafford Loans via FFEL Program

•   Graduate or professional FFEL PLUS Program Loans

•   FFEL Consolidation Loans that didn’t include parent PLUS Loans

SAVE Plan: Pros and Cons

Generally, the SAVE Plan is expected to be the most advantageous of all income-driven repayment plans. Although there are a handful of benefits, there are still some potential downsides to consider.

Pros

•   Offers lowest or $0 payment option. SAVE’s new poverty line adjustment broadens the exemption for borrowers who can qualify for a zero-dollar monthly payment.

•   Caps interest. Interest in excess of a borrower’s calculated payment will not be charged, preventing your loan balance from growing.

•   Faster progress toward loan forgiveness. The new approach to how past non-qualifying payments and non-payments are counted toward forgiveness helps borrowers get out of debt faster.

•   Helps avoid delinquency or default. The SAVE Plan offers a long-term solution for low or no payments to avoid the impact of delinquency or default.

Cons

•   Only the lowest income earners get $0 payment. Not all borrowers qualify for $0 payments. Payment amounts are based on income and family size; for example, a single borrower who earns $32,800 or less won’t have a payment requirement, but your payment amount increases as you earn more.

•   Requires annual recertification. Like all IDR plans, you must recertify your income and family size each year, and if you don’t, you’ll be removed from the plan. (Note, however, that auto-recertification will be available starting in July 2024, saving plan participants from having to manually re-submit their income every year.) As with any IDR plan, the result of the recertification may be that your monthly payment amount may change if your income increases over time. If your income rises enough, it may transpire that SAVE no longer offers the lowest monthly payment as compared to other repayment plans or refinancing options.

•   Faces political opposition. Critics of the SAVE Plan argue that the new repayment option is unfair and is an overreach of presidential powers. With the SAVE Plan still in its infancy, there’s no telling where it will land in the following months.

💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

On-Ramp Repayment Program

As a way to ease student loan borrowers out of the payment pause, the Department of Administration is implementing what it calls the “on-ramp repayment program”. This timeframe temporarily gives borrowers more time to sort out their financial situation before the negative consequences of non-payment takes effect.

How Does The On-Ramp Work?

The Department of Education’s on-ramp program spans 12 months. It begins on October 1, 2023 and is in effect through September 30, 2024. During this one-year period, any borrower who misses a payment, whether the first one that’s due in October or in the middle of the on-ramp, won’t be considered delinquent.

This means that the non-payment won’t be reported to the credit bureaus, and it won’t affect your credit score and ability to borrow other consumer loans or lines of credit. And if you continue to not make your monthly payments during the entirety of the on-ramp, your loan won’t go into default status. This means you can avoid debt collections and federal payouts, like Social Security benefits and tax refunds, won’t be withheld by a treasury offset.

It’s important to understand that although you’ll get short-term respite from the major consequences of non-payment, payments are still technically due and interest still accrues during this forbearance.

On-ramp program eligibility

The on-ramp repayment program is available to any borrower with unpaid federal student loans held by the Department of Education. It’s an automatic warming-up period that doesn’t require any additional steps to participate in.

The Administration advises that those who can afford to pay their student loan payments in October should plan to do so.

On-Ramp Program: Pros and Cons

The on-ramp forbearance offers an extended reprieve from making a student loan payment, if you’re not in a financial position to do so. However, there are considerations to be aware of before missing a payment.

Pros

•   Interest charges won’t capitalize. Any interest charges that are unpaid won’t be added to your principal balance after the on-ramp. This prevents your unpaid loan balance from ballooning.

•   Account status won’t affect credit. The non-payment data won’t be reported to credit bureaus or debt collection agencies. Taking advantage of the on-ramp timeline, won’t adversely affect your credit score or influence treasury offsets.

•   Avoids delinquency or default. The on-ramp lets you keep your loan in a status that doesn’t require monthly payments, but also avoids the negative repercussions of missing payments, like debt collection and credit-related penalties.

Cons

•   Interest continues accruing. Although the on-ramp forbearance defers your payment requirement, interest is still charged each month. While the interest won’t capitalize, it will still need to be paid off when the on-ramp ends.

•   No progress toward forgiveness. Months of non-payment don’t earn you credit toward loan forgiveness. The on-ramp further prolongs your timeline toward having your debt forgiven.

•   Account becomes delinquent after on-ramp. When the on-ramp period expires, the missed payments are still due. In addition to not moving the needle forward, accounts with missed payments after the on-ramp are considered delinquent and can affect your credit.

What To Do If You’re Worried About Payments Due In October

There’s no one federal student loan repayment solution that works for everyone. Whether you’re exploring your options because you can’t afford payments or are hoping to earn loan forgiveness along the way, everyone’s situation is different.

If the impending restart of student loan payments is looming over your shoulders, contact your loan servicer immediately. Discuss where your finances are and the relief options available to you. Addressing your student loans head on can keep your debt in good standing while avoiding more severe outcomes later.

Student Loan Refinancing

Refinancing your federal student loans is another option for student loan borrowers to consider, especially if your existing loans carry a high interest rate. If you don’t qualify for the low monthly payments of the SAVE Plan, refinancing could be another avenue to a lower monthly payment (though you may pay more interest over the life of the loan if you refinance with an extended term). It’s also important to be aware that refinancing replaces your federal student loan with a private one, which means that you’ll lose access to income-driven repayment and other federal benefits.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A budget is a great way to take control of your money: It gives you vital intel about your earnings, spending, and saving while providing guidance so you can hit your financial goals.

That said, a key step in the budgeting process is finding the right technique for you. Which is why it can be helpful to learn about two different budget types that are often used in business accounting. The two varieties, a static budget and a flexible budget, can apply them to your personal finances.

A static budget presets your spending limits per category, but doesn’t vary with real-time events, like an unexpected car repair bill or low-earning quarter. When you use a flexible budget, however, you can adjust amounts month by month or even week after week.

Depending on your personal and financial style, one type of budget may work better than another for you. This guide will explain each approach and spell out their pros and cons so you can pick what will work best for you.

What Is Flexible Budgeting?

What is a flexible budget? It’s a way of tracking and managing your money that relies on current information. It does not stay fixed. Rather, you can review the data — what’s coming in and what’s going out — and adjust accordingly. So if a client doesn’t pay his bill one month as you expected or an unexpected expense pops up, you can juggle things around a bit.

You might temporarily cut some discretionary expenses, such as entertainment or clothing, for example.

What Is Static Budgeting?

A static budget vs. a flexible budget is more rigid. Sometimes referred to as a master budget, a static budget can be a good way to establish financial guardrails. You always know how much you have allotted to pay for certain expenses.

Say you typically spend $500 a month on groceries. In a static budget, that is the amount that will be earmarked, regardless of whether, say, you are throwing a 30th birthday party for a pal and need to load up on supplies for charcuterie boards.

The budget won’t vary, and you may perhaps have to figure out how to make it work.

Comparing Static vs Flexible Budgeting

Here, you’ll learn about the differences between static vs. flexible budgets by exploring the pros and cons of each.

Pros and Cons of Flexible Budgeting

Here’s a closer look at flexible budgeting, starting with the upsides.

Pros of Flexible Budgeting

If you review the different budgeting methods and choose a flexible one, you will likely enjoy these positives:

•   Reflects income fluctuations. If you work as a freelancer, a seasonal employee, or on commission, you are used to the ups and downs of your earning. With a flexible budget, this variation is acknowledged and addressed.

•   Adjusts for changing expenses. A flexible budget can help you account for shifts in spending, such as needing to shell out for a new phone or getting a month of free rent when you move to a new apartment.

•   Allows for spontaneity. It can let you jump on an opportunity, like a chance to go to London for half-price when you find a killer deal online.

Cons of Flexible Budgeting

Next, consider the downsides of flexible budgeting.

•   Requires time and energy. Because it isn’t a “set it and forget it” method of budgeting, it means you need to check in regularly on your income, spending, and saving to stay on track.

•   Limits your ability to plan. Since you are adjusting and recalibrating, that may detract from how well you can map out and achieve your financial goals.

•   May minimize accountability. If you know your budget is flexible, you may feel as if you have license to deviate from your money management habits. You may give yourself permission to overspend (like that half-price trip to London mentioned above.)

Pros and Cons of Static Budgeting

Here’s the lowdown on static budgets so you can decide if they suit your personal and financial style.

Pros of Static Budgeting

First, the positives about these budgets:

•   Provides structure. A static budget is a rigorous way of tracking and managing your money. You determine how much cash goes where and then follow those guidelines. It tells you what you can and can’t do month to month.

•   Needs little maintenance. As mentioned before, this is a “set it and forget it” type of plan, not one that needs constant adjustment.

•   Can enhance goal-setting. This kind of plan helps you prioritize and follow through. If you are trying to sock away money for the future (whether that means a vacation next year or the down payment on a house several years down the road), a static budget can help you hit your marks without fail.

Cons of Static Budgeting

That said, there are downsides to static budgets:

•   Can be too rigid. Life happens: You try the new Brazilian steakhouse in your neighborhood and blow your dining out budget. You get hit with an unexpected car repair bill. A static budget doesn’t give you wiggle room.

•   Can be discouraging. A corollary to the above point: Some people feel less motivated to follow a budget when they feel it doesn’t “get” what’s going on in their life. It may lead them to be less diligent about tracking their expenses and money in general.

If you aren’t sure which budgeting method is best for you between static budgets and flexible budgets, a hybrid approach might be appropriate. That could include:

•   Setting up a master budget at the beginning of the year based on projections and using it as a guide.

•   Tracking costs as the year progresses and making adjustments when necessary.

•   Using that information and learning to better inform next year’s plan.

7 Steps to Start Budgeting

The point of a budget — whether you’re a freelancer or a full-time employee — is to spend less than you earn so you can save and reach future financial goals. Here are a few steps for budgeting for beginners; they could help you get started.

1. Figuring out What You Spend

If you aren’t already tracking your spending, that may be a good place to begin. There are several ways to do this, from carrying around a small notebook and writing down every expense to using a spreadsheet to downloading an app on your phone (your financial institution may offer a good option).

•   Understand your fixed expenses. Once you’ve tracked your spending for a few months, you can determine your average spending in various recurring categories. Some of this will be fairly easy, because the costs are often the same (housing, car payment, student loans, etc.).

•   Get a handle on variable expenses. Your discretionary expenses will likely vary from month to month or at different times of year. Utility costs may go up or down, for instance, depending on the season. Or your travel costs may go up if you take a summer vacation. And some costs, such as clothing, entertainment, and household goods, will be more discretionary than others.

•   Don’t skip important items. Be sure to include commonly forgotten expenses, such as pet-care costs and charitable donations. If you’re self-employed, you may want to consider taxes, retirement savings, insurance, and other expenses that others might have automatically withdrawn from their paychecks every month.

2. Determining What You’ll Earn

Pinning down how much you can expect to earn is often much easier for those with regular paychecks. If you’re self-employed but have steady clients who pay on time, or your job is a mix of paychecks and tips or commissions, you may be able to come up with a fairly accurate estimate.

But if you’re a freelancer or contractor whose work and pay varies widely from month to month, it can be a challenge to set this amount.

•   Example: You can use your spreadsheet or tracking app to determine an average amount earned ($4,000 in July + $5,000 in August + $3,000 in September would be $4,000 a month, for example). This may give you a more realistic number on which to base your budget calculations than guessing (or hoping) that you’ll make a certain amount.

3. Creating a Budget Using What You’ve Found

Here’s where you can make a budget that you want to use.

•   With a static budget, you would set spending limits and stick with them throughout the year.

•   With a flexible budget formula, you would set spending limits, but adjust when necessary: If you make less than expected, you spend less than you planned.

•   If you see that you’re spending more in one category than expected, you can shift allocations or find ways to cut recurring costs like your cable bill, haircuts or pedicures, or gym membership.

•   If it looks as if you’re headed for a long-term shortfall, and you just can’t cut it any tighter, you may have to find a way to earn extra money by taking on a side gig or perhaps raising your freelance rates. What’s important is setting a realistic budget, so you can stick with it.

4. Considering the 50/30/20 Plan

Looking for flexibility, but don’t want a budget you have to rework every month? You may be a candidate for the 50/30/20 budgeting method, which was made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

The plan suggests the following:

•   Putting 50% of after-tax income toward essentials like rent and food, as well as minimum debt payments.

•   Allocating 30% toward discretionary spending, or the fun stuff in life.

•   Committing 20% toward savings.

This method also makes sense for people who are on a steady salary as well as those who don’t have a steady income, because it’s based on percentages. And those percentages are just a guideline for getting started, so you can shift the amounts to make it work for your finances.

You can save more or less, depending on what you’re earning or what long-term debts you have. Or you might move a few percentage points from discretionary spending to cover essentials if you live in a city with higher housing or transportation costs.

5. Building a Backup Fund

If possible, consider making an emergency savings account a priority. Life has unexpected ups and downs for everyone, and financial experts’ recommend that you build up to three to six months’ worth of living expenses in the bank.

This can help protect you if, say, you were to lose your job or face a large, unexpected expense. It can help you stay afloat and avoid racking up high-interest credit card debt.

An emergency fund can be especially important for freelancers and other self-employed workers. If you have a slow month or quarter (or get injured or sick), that money can tide you over.

Even if saving anything at all seems daunting, don’t worry or give up. Starting small, with a $100 or $200 deposit or the addition of $20 at a time can be better than never starting at all.

6. Splurging Responsibly

With a personal budget, cost-cutting measures can be a sign of fiscal responsibility, but if you can’t splurge every once in a while, it may make it harder to stick to your overall plan.

So how can you splurge responsibly? Living on a budget doesn’t mean you don’t get to have fun! Maybe you earmark $25 a week for fun little purchases if you’re the kind who loves getting a gelato or buying a book from time to time. Or you might choose to put any bonuses, unexpected earnings, and tax refunds straight into the bank with a trip or some other big spend in mind.

Or you could build the extravagance into your budget, with a category specifically for vacations or travel, or one for home renovations, and deposit that amount into a separate account just for that purpose.

7. Thinking About Tomorrow

A smart personal finance budget involves saving for retirement. Many experts recommend signing up ASAP if your employer offers a 401(k) or some other retirement plan — especially if there’s a matching contribution involved. If an employer plan isn’t available to you, you may still want to make it a goal to invest something each month in a traditional IRA, Roth IRA, or Simplified Employee Pension (SEP) IRA.

With a traditional IRA or SEP, you can defer paying taxes on the money you invest until you take withdrawals in retirement, which can keep you in a lower-tax bracket.

Or, if you’re nervous about tying up the money that long, you could go with an after-tax Roth account, which allows you to withdraw contributions (but not earnings) at any time. You can open an IRA at a brokerage, bank, or other financial services provider.

Savings With SoFi

If you’re convinced you should use a budget — static or flexible — or are already doing so, it’s wise to keep your money with a financial institution that helps you track your spending and make the most of your cash. Like SoFi.
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Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is the difference between a fixed and flexible budget?

Here’s the difference between a fixed vs. flexible budget: With a fixed budget, it’s expected that your income, spending categories, and savings will remain constant. With a flexible budget, there is wiggle room for adjusting and updating these numbers.

What is an example of a fixed budget?

With a fixed budget, the numbers for earnings, spending, and saving would be set and then stay constant. It would be assumed, say, that your housing expenses, your dining out and clothing spending, and your retirement savings will be steady, month after month.

What is an example of a flexible budget?

An example of a flexible budget is one that varies and takes into account the ups and downs of income, spending, and saving. For instance, it might add a category for gift-buying in December as the holidays approach, or drop in a sum of vacation spending in July.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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