SAVE plan: A borrower’s guide to repayment

Are you looking to save on your student loan payments? If you’re a federal student loan borrower, the new Saving on a Valuable Education (SAVE) plan may help. Under this income-driven repayment (IDR) plan, you may qualify for lower payments and get interest benefits that aren’t available through other plans. Here’s what you need to know about the SAVE plan and how it works.

What is the SAVE plan?

The Saving on a Valuable Education (SAVE) plan is the latest income-driven repayment plan available to federal student loan borrowers. Launched by the Biden administration in 2023, the SAVE plan’s primary purpose is to make student loan payments more affordable, and it takes the place of the former Revised Pay As You Earn (REPAYE) plan. In its new form, the SAVE plan brings key changes to support student loan borrowers.

For starters, the income exemption that was 150% of the poverty line is now at 225% under the SAVE plan, resulting in lower payments for borrowers. On top of that, married borrowers can now use only their income instead of joint income when filing taxes separately. Before, REPAYE considered spousal income as part of the payment calculation even if you filed separately.

The SAVE plan also comes with a game-changing interest subsidy. The government won’t add any unpaid interest to your loan balance if you make your full monthly payments on time. So if your payment is $250 per month, but $300 in interest accrues each month, the additional $50 won’t be added to your principal balance.

In some cases, SAVE may offer the lowest payment compared to other repayment options, including other income-driven plans. Currently, payments are calculated at 10% of your discretionary income.

The SAVE plan at a glance:

• Eligible loans: Most federal student loans, except parent PLUS loans, consolidated parent PLUS loans, defaulted loans, and some Federal Family Education Loan (FFEL) program loans
• Monthly payments: Based on income and family size; payments set at 10% of discretionary income
• Interest: Subsidized by the government if you make your full monthly payment on time
• Forgiveness potential: Remaining loan balance is forgiven after as little as 10 years of payments

Who qualifies for SAVE?

The SAVE plan is available to most federal Direct Loan borrowers with loans from the U.S. Department of Education, including:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Graduate PLUS loans
• Direct Consolidation Loans (not including consolidated parent PLUS loans)

To be eligible for SAVE, borrowers with federal loans under the FFEL program or Perkins Loans can consolidate. A Direct Consolidation Loan combines your federal loans and is part of the Direct Loan program, which qualifies for SAVE.

Notably, parent PLUS loan borrowers are left out and are ineligible for the SAVE plan. Defaulted student loans also don’t qualify for SAVE.

The good news is that there is no partial financial hardship requirement with SAVE, and borrowers at all income levels may qualify for the plan.

How repayment works

When you sign up for the SAVE plan, your monthly payments are set at 10% of your discretionary income. Keep in mind that SAVE plan payments are not capped like they are with some other IDR plans — this means your payment can go up. Your repayment timeline will depend on the type of loans you have.

Undergraduate loan borrowers have a repayment term of 20 years. Borrowers with any graduate loans have a repayment term of 25 years.

Under the new SAVE plan, the discretionary income calculation has changed from 150% of the poverty line to 225%. The increase benefits borrowers and may provide lower monthly student loan payments.

More to come in summer 2024

The SAVE plan is open to student loan borrowers right now, with ample benefits like an interest subsidy, earlier access to potential loan forgiveness, and the increased income exemption. But even more benefits are slated for July 2024:

• Lower payments for undergraduate borrowers: Payments for borrowers with only undergraduate loans will be reduced to 5% of income instead of 10%. If you have both graduate and undergraduate loans, payments will be reduced to a weighted average between 5% and 10%.
• Additional forgiveness credit: Borrowers may receive forgiveness credit for certain periods of deferment and forbearance. You’ll be able to receive credit for any periods of deferment before July 1, 2024, and for forbearances starting anytime on or after this date.
• Changes to consolidation: Borrowers won’t miss out on any forgiveness credit if they consolidate their loans before July 2024.
• Automatic enrollment into IDR: If you miss a payment by 75 days or more, you’ll be automatically enrolled in an income-driven repayment plan, as long as you’ve allowed access to your tax data. You’ll be enrolled in an IDR plan with the lowest possible monthly payment you’re eligible for.

Is the SAVE plan right for me?

Most student loan borrowers can benefit from the increased income exemption and interest subsidy available under the SAVE plan. Overall, the plan offers both affordability and flexibility, making it one of the more favorable income-driven repayment options.

Borrowers who earn around $30,000 or less stand to gain the most under the SAVE plan, qualifying for $0 payments. The SAVE plan can also be the most beneficial for borrowers with a large family size. Based on data from StudentAid.gov, borrowers with a family size of five and an annual income of $60,000 can also qualify for $0 payments.

The SAVE plan isn’t the right option for everyone, though. Borrowers with a relatively high income may not reap the benefits of the SAVE plan. One of the SAVE plan’s drawbacks is that there isn’t a cap on the monthly payment amount. In other words, your payment amount could be higher than the standard 10-year repayment plan amount.

For both the Pay As You Earn (PAYE) and Income-Based Repayment (IBR) plans, there are caps in place so that your monthly payment amount never exceeds what you’d end up paying on the Standard Repayment plan. However, PAYE and IBR also require borrowers to demonstrate partial financial hardship, while the SAVE plan does not.

Signing up for the SAVE plan

Federal loan borrowers interested in signing up for the SAVE plan can submit an Income-Driven Repayment (IDR) plan request online. If you were previously on the REPAYE plan, then no action is required, as SAVE replaced that plan.

To get started, you’ll need:

• Personal information, like your phone number
• Your Federal Student Aid (FSA) ID
• Income information
• If married, spouse’s information

You can apply for the SAVE plan at any time. The application process usually takes a total of 10 minutes. Once you’re enrolled, you’ll need to recertify your income and family size each year, just like all other IDR plans.

SAVE plan alternatives

While the SAVE plan is the newest income-driven repayment plan, it’s not the only one available to student loan borrowers. In total, there are four IDR plans. All IDR plans offer student loan forgiveness if there’s a remaining balance at the end of the repayment term.

The other income-driven repayment options are:

• Income-Based Repayment (IBR) plan: The IBR plan is available to eligible borrowers who demonstrate partial financial hardship. You’ll pay 10% or 15% of your discretionary income for 20 or 25 years, based on when you borrowed.
• Pay As You Earn (PAYE) plan: Eligible borrowers who demonstrate partial financial hardship pay 10% of their discretionary income for 20 years. You must also be a new borrower.
• Income-Contingent Repayment (ICR) plan: Borrowers pay 20% of their discretionary income for 25 years. This is the only income-driven repayment plan available to parent PLUS loan borrowers, and you must consolidate first to qualify.

If you have private student loans and are looking to reduce your monthly payment, refinancing might be worth considering.

Student loan refinancing can potentially lower your interest rate, which would in turn reduce your monthly payments and the overall cost of your loan. Just keep in mind that refinancing federal student loans is usually not encouraged, as you’ll lose borrower benefits like access to income-driven repayment plans and forgiveness options.