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Launched in August 2023, the Saving on a Valuable Education (SAVE) plan is a new income-driven repayment (IDR) for federal student loan borrowers. It replaced the Revised Pay As You Earn (REPAYE) plan and may offer the most affordable monthly payments for borrowers.
In fact, the SAVE plan comes with several new benefits, including a more generous interest subsidy and a potentially faster path to loan forgiveness. However, only some of SAVE’s features are available now — the rest will become active in July 2024.
Here’s a closer look at the new SAVE plan, including how it works, who’s eligible, and how to enroll.
Understanding the SAVE Repayment Plan
The SAVE plan is the latest income-driven repayment plan from the Department of Education, and it offers the most affordable monthly payments for many borrowers.
Core Elements of the SAVE Repayment Plan
Like other IDR plans, SAVE bases your monthly student loan payments on a percentage of your discretionary income. However, the way that SAVE calculates discretionary income could lead to lower payments. According to the Department of Education, the SAVE plan could save borrowers more than $1,000 per year compared to other plans.
The SAVE plan also comes with an interest subsidy for both subsidized and unsubsidized loans. If your monthly payments don’t pay for all your interest, the Department of Education will cover the remaining charges. This means your balance will never grow as long as you make your payments on time.
Starting in July 2024, the SAVE plan will also adjust your monthly payments on undergraduate loans to 5% of your discretionary income. For graduate loans, you’ll pay 10% of your discretionary income. If you have a mix of both loan types, you’ll pay a weighted average.
What’s more, borrowers who originally took out $12,000 or less could receive loan forgiveness after 10 years on the SAVE plan. The time frame will get longer for higher amounts, with a maximum term of 20 or 25 years.
How Does the SAVE Repayment Plan Work?
The SAVE plan adjusts your monthly payments to a percentage of your discretionary income. Discretionary income is the difference between your annual income and a percentage of the U.S. Department of Health and Human Services poverty guideline for your state and family size.
While other income-driven repayment plans use 100% to 150% of the poverty guideline, the SAVE plan uses 225%. That means more of your income is exempt, so you should have lower monthly payments as a result. On SAVE, a single borrower who earns $32,800 or less or a family of four earning $67,500 or less will have payments of $0 in most states.
Married borrowers may also appreciate that they don’t have to include their spouse’s income if they file their taxes separately. If you file your taxes jointly, though, your student loan payment will be based on both your incomes.
Who’s Eligible for the SAVE plan?
Anyone with eligible federal student loans is eligible for the SAVE plan. Eligible loans include:
- Direct subsidized loans
- Direct unsubsidized loans
- Direct PLUS loans made to graduate or professional students
- Direct Consolidation loans that didn’t repay any Parent PLUS loans
FFEL and Perkins loans are also eligible, as long as they weren’t made to parents and are consolidated into a Direct Consolidation loan. Parent loans are not eligible for SAVE — the only income-driven plan available to parent loans is the Income-Contingent Repayment plan. However, parents may become eligible for SAVE using the “Double Consolidation Loophole” before it closes in July 2025.
Pros of the SAVE repayment plan
The SAVE plan has a number of potential benefits for borrowers.
Payments as Low as 5%
Starting in July 2024, the SAVE plan could slash monthly payments in half for borrowers with undergraduate student loans. Your payment amount will be 5% of your discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average for a mix of both.
Faster Path to Forgiveness
The SAVE plan will forgive your remaining balance after 10 to 25 years, depending on how much you owe. Borrowers who took out $12,000 could receive loan forgiveness after 10 years. The timeline will increase by one year for each additional $1,000 borrowed.
What’s more, you’ll still make progress toward loan forgiveness during a period of deferment or forbearance as long as you have a qualifying reason. You can also consolidate your loans without resetting the clock.
Interest Cap
SAVE has the most generous interest subsidy of all the income-driven repayment plans. The Department of Education will pay for all the interest that your monthly payments don’t cover.
Spouse’s Income Can Be Excluded
In the past, married borrowers couldn’t always exclude their spouse’s income from their income-driven repayment plan, even if they filed taxes separately. That resulted in higher monthly payments for some borrowers. Now, borrowers can exclude their spouse’s income if they file taxes separately on the SAVE plan, as well as the other income-driven plans.
Cons of the SAVE repayment plan
While the SAVE plan is the most affordable income-driven student loan repayment plan yet, it still has some potential downsides to be aware of.
Parent PLUS Borrowers Not Eligible
Parent loans, such as Parent PLUS loans and FFEL PLUS loans made to parents, are not eligible for SAVE. Similarly, Direct Consolidation and FFEL Consolidation loans that repaid loans made to parents don’t qualify for SAVE.
Potentially Not as Beneficial for Grad Borrowers
On the SAVE plan, payments on graduate school loans will be calculated as 10% of your discretionary income. That’s not any lower than what some other income-driven plans offer. And depending on your loan balance, you could still end up in repayment for up to 25 years.
SAVE vs. Other IDR Plans
Besides PAYE, you have three other options for income-driven repayment: Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). The SAVE plan, however, offers more advantages than other IDR plans in several ways:
- More of your income is exempt. Other IDR plans calculate your discretionary income based on 100% or 150% of the poverty guideline, while the SAVE plan uses 225% of the guideline.
- You could have a lower monthly payment. On SAVE, your monthly payments will eventually be 5% to 10% of your income vs. 10% to 20% on the other IDR plans.
- Loan forgiveness could arrive sooner. The SAVE plan could offer loan forgiveness after 10 years, depending on your original principal balance, whereas the other IDR plans require at least 20 years of repayment.
- The interest subsidy is more generous. The PAYE and IBR plan offer a temporary, limited interest subsidy, and ICR doesn’t come with an interest subsidy at all. By contrast, the government will cover all your unpaid interest charges on SAVE.
How to Enroll in SAVE
If your student loans were previously on REPAYE, you were automatically enrolled in SAVE. If not, you can enroll in SAVE by logging into your account at StudentAid.gov and submitting an IDR plan request. You can also call your student loan servicer for assistance.
When applying for SAVE, you’ll need to provide your contact information, income, and spouse’s details, if applicable. The application typically takes 10 minutes or less.
When you apply, you can also choose to allow the Department of Education to access your IRS tax returns. By opting in, the Department of Education can automatically re-enroll you in the SAVE plan on an annual basis. If you don’t agree to disclose your tax information, you’ll need to manually recertify your SAVE plan each year.
Conclusion
If you’re looking to reduce your student loan payments, the SAVE plan may offer the lowest monthly bills of any income-driven repayment plan. It’s especially beneficial for borrowers with undergraduate student loans, as it could cut your payment in half starting next summer.
Plus, borrowers won’t have to worry about their loan balance growing due to unpaid interest charges on SAVE. As you get back into the swing of paying your student loans after a three-and-a-half year hiatus, the SAVE plan may be your best bet for income-driven repayment.
