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The new SAVE income-driven repayment plan replaces the Department of Education's REPAYE plan and offers student loan borrowers a more affordable option.
Aside from mortgages, student loan balances continue to be the highest debt category in the country, with outstanding balances totaling $1.39 trillion in June 2023, according to Experian data. The Saving on a Valuable Education (SAVE) plan aims to help borrowers by offering lower monthly payments, shorter timelines for forgiveness and reduced interest costs.
All borrowers with eligible federal student loans can enroll in SAVE, but whether it will help you save money and reduce loan payments depends on several factors.
How Does the SAVE Plan Work?
The SAVE plan is far-reaching and tackles different aspects of income-driven student loan repayment, including income thresholds, interest accrual and forgiveness timelines.
Some aspects of the plan, such as the increased income threshold and interest waivers, are already in effect. But other parts of the SAVE plan, including the percentage change in discretionary income, new forgiveness timeline and automatic recertification, will begin in July 2024.
Here's how the SAVE plan impacts student loan debt repayment.
1. Reduced Monthly Payments
Payment amounts for borrowers on the SAVE plan are a percentage of their discretionary income, defined as the difference between household income and 225% of the U.S. poverty guideline according to household size. The SAVE plan halves undergraduate student payments from 10% to 5% of discretionary income. Graduate students still have to pay 10%, but borrowers with graduate and undergraduate loans will pay a weighted average between 5% and 10%.
With these changes, borrowers will save upwards of $1,000 each year compared with other income-driven repayment plans, according to the Biden administration.
2. Higher Income Limits for $0 Payments
The SAVE plan increases the income level that qualifies for $0 monthly payments, leading to an additional 1 million low-income borrowers eligible for $0 monthly payments.
You will not have to make payments if you are a single borrower earning around $15 per hour or $32,800 per year. The same is true for a family of four earning $67,500 or less.
3. Shorter Loan Forgiveness Timeline
The SAVE plan allows borrowers to earn loan forgiveness in as little as 10 years. Previous repayment plans required borrowers to make payments for at least 20 years.
With the new plan, borrowers who had original principal loan balances of $12,000 or less can receive forgiveness after 120 payments. Each additional $1,000 equates to 12 more payments. For example, a borrower who owes $16,000 can earn forgiveness in 14 years.
4. Less Interest Accrual
With SAVE, borrowers' loan balances will no longer increase due to unpaid interest if they make their minimum payment and the interest amount is bigger than the payment.
For example, consider a borrower enrolled in the SAVE plan with a monthly loan payment of $90. Their loan accrues $150 in interest each month. As long as the borrower makes the $90 payment, the remaining $60 will not be charged.
5. Easier Access for Borrowers
The SAVE plan makes it easier for borrowers to enroll and recertify. Borrowers can grant the Department of Education access to their tax returns, eliminating the need to manually provide the information when applying to the program for the first time or recertifying annually. You can also choose to automatically reenroll in the program each year.
If you are married and filing taxes separately when you apply, your spouse's income will not be considered and you do not need them to cosign the application.
Who Qualifies for the SAVE Plan?
Any former undergraduate or graduate student with eligible federal student loans can enroll in the SAVE plan. Loans are not eligible if they are in default. Federal loans for parents, including the direct PLUS loans, also do not qualify for the plan. Certain loans, such as FFEL and Perkins loans, must be consolidated into a direct consolidation loan before they can qualify for SAVE.
SAVE payment plans are based on a borrower's loan amount, income and family size, so each borrower's payment amounts can differ.
How to Sign Up for the SAVE Plan
The SAVE plan replaces REPAYE, so you'll automatically be switched over if you're already enrolled in that plan. Borrowers who want to apply for SAVE for the first time must complete the following steps.
- Gather the necessary information. You'll need your FSA ID, telephone number, permanent address, financial information and email address to apply.
- Complete the income-driven repayment plan application. There's one application for all income-driven repayment (IDR) plans. You do not need to complete a specific application for SAVE. Log in or create an account on StudentAid.gov. After that, you can complete the application, which should take less than 10 minutes.
- Request the lowest monthly payment. As you complete the application, you can request the smallest monthly payment, which is usually the SAVE plan.
Can You Apply for SAVE if You're on Another Repayment Plan?
If you are in a different IDR plan, you can log in to your StudentAid account and request to change to the SAVE plan. If you're unsure which option is best for you, use the Loan Simulator to calculate different payments based on your circumstances.
Is the SAVE Plan Right for Me?
Finding a repayment plan that works for your budget and life circumstances is important. The SAVE plan is a great option, but it may not make sense for everyone.
If you find yourself in the following circumstances, the SAVE plan might be the right fit.
- Your loan balance is less than $20,000. If your total balance is less than $20,000, you can receive loan forgiveness faster than on any other IDR plan.
- You want the lowest monthly payment. The SAVE plan is typically the best pick for borrowers who want the lowest monthly payment. Whether your budget is tight or you have big expenses on the horizon, lower payments can help you prioritize other necessary spending.
- You're a low- to medium-income earner. With the SAVE plan, your payment amount varies based on income and family size. Borrowers with lower earnings typically benefit most from SAVE.
But the SAVE plan might not be the best fit if you find yourself in these situations.
- You have private student loans. Borrowers who only have private student loans are not eligible for the SAVE plan or any other IDR plan through the federal government.
- You want to pay off debt as soon as possible. The SAVE plan might not make sense if you're interested in rapid debt repayment or paying more than the minimum. It prioritizes smaller payments over a longer timeframe.
- You're a high-income earner. The SAVE plan aims to help borrowers with lower incomes. Borrowers with higher salaries might not benefit from SAVE since they are less likely to need help meeting their loan obligations.
Other Income-Driven Repayment Plans
Including the SAVE plan, there are four income-driven repayment plans available. As you consider which program makes the most sense, take time to review the other options.
- Income-based repayment (IBR): To qualify for IBR, your payment with the plan must be lower than what you'd make with a standard repayment plan under a 10-year repayment period. If you got your loan before July 1, 2014, the program caps loan payments at 10% of discretionary income with loan forgiveness after 20 years. Loans awarded after that date require payments of 15% of discretionary income with forgiveness after 25 years.
- Income-contingent repayment (ICR): On this plan, you'll pay the lesser of 20% of your discretionary income and the payment you'd make on a fixed 12-year repayment plan, adjusted according to your income. Repayment lasts 25 years. This is the only income-driven repayment plan available for parents with direct parent PLUS loans. But you must first consolidate the PLUS loans into a direct consolidation loan. Other federal loans are eligible for the plan without consolidating, and any borrower with a qualified loan can apply.
- Pay As You Earn (PAYE) repayment plan: While SAVE will continue to roll out features over the next year, PAYE will begin to wind down. Borrowers can no longer apply for the program after July 1, 2024. Like SAVE, the PAYE plan bases payment amounts on income and family size. But eligibility requirements differ, and not all borrowers qualify.
The Bottom Line
As an updated version of REPAYE, the SAVE plan offers lower monthly payments, shorter forgiveness timelines and higher income thresholds—all of which makes the program even more beneficial for borrowers.
The SAVE plan might be a solid option if you have federal loans and want smaller payments or a longer repayment period. But it's not for everyone and might not make sense if you're a high earner or eager to become debt-free as quickly as possible.