The SAVE Plan Can Be a Game Changer for Student Loan Borrowers

The U.S. Department of Education recently introduced the most generous federal student loan income-driven repayment (IDR) plan to date. Specifically, the Saving on a Valuable Education (SAVE) Plan was launched after the U.S. Supreme Court blocked the proposed federal student loan cancellation in June 2023, before payments were set to restart in October 2023 after a three-year hiatus. Some of the benefits of SAVE have already taken effect, and others will begin in July 2024 when the plan is fully implemented. While implementation is occurring in phases, eligible borrowers can sign up online now with a beta version of the application.

What to know about the SAVE Plan?

SAVE is an income-driven repayment (IDR) plan that calculates a borrower’s monthly payment according to their income and family size, replacing the previously predominant Revised Pay As You Earn (REPAYE) Plan.

Although the SAVE Plan is the preferred choice for many federal loan recipients, there are circumstances, typically concerning very-high-income borrowers, where alternative repayment plans may prove more advantageous. Additionally, there will be a one-time IDR account adjustment at the end of this year, enabling borrowers to consolidate their loans without “resetting the clock” on forgiveness. Individuals consolidating two or more loans as part of the REPAYE/SAVE program, should begin this process as soon as possible.

Benefits that take effect now:

• Income protection under SAVE will increase from 150% to 225% of the federal poverty level. For a single borrower, this equates to earning less than $32,800 a year ($67,500 for a family of four).¹ Borrowers below the threshold will have their loan payments set at $0.
• Unpaid monthly interest will no longer accrue if borrowers make their required monthly payments under SAVE, even when the monthly payment is $0, preventing the loan balance from increasing.
• Married borrowers who file their taxes separately will no longer be required to include their spouse’s income in the payment calculation for SAVE. In addition, the spouse will be excluded from family size when payments are calculated.

Benefits that will take effect in July 2024:

• Monthly payments will be capped at 5% of discretionary income for undergraduate loans and 10% for graduate loans. Borrowers who have both undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income, based on the original principal balances of their loans.
• For borrowers who have an original principal balance of $12,000 or lower, the remaining loan balance will be forgiven after 10 years of payments. For an original loan balance that’s higher than $12,000, the maximum repayment period will increase by one year for every additional $1,000 borrowed. For example, a $13,000 loan will be forgiven after 11 years of payments, a $14,000 loan will be forgiven after 12 years, and so on. Under REPAYE, loan balances were forgiven for undergraduate students after 20 years of payments; for graduate students it was 25 years.

How do I get started with SAVE?

There are different ways to enroll:

• Borrowers who are already enrolled in the REPAYE Plan will be automatically enrolled in the SAVE Plan, and their monthly payments will be adjusted automatically, with no action needed on their part.
• To enroll in SAVE or switch from a plan other than REPAYE, borrowers must log in to thefederal student aid website, complete a brief an application, and provide their FSA ID, financial and personal information, and spouse’s details (if applicable). The current SAVE application is in beta, but allows for submissions, according to the Department of Education.
• Several types of federal loans must be “consolidated” to be eligible for the SAVE Plan. Federal Family Education Loan (FFEL), and Perkins fall in this category. Parent PLUS requires a “double consolidation”. There’s a small window through the end of the year when consolidation won’t reset the IDR clock for forgiveness, so it’s recommended that this process begin as soon as possible. People with Parent Plus loans are not eligible for the new plan.
• Borrowers who have a federal student loan in default will need to get the loan back in good standing to become eligible for SAVE. This can be done through the government’sFresh Start program.
• Borrowers enrolled in the Public Service Loan Forgiveness (PSLF) Program will have their remaining balance forgiven after 10 years, regardless of which IDR plan they’re enrolled in, as long as they have a Direct federal loan (not FFEL).
• Borrowers who have a private loan (other than FFEL) or a federal loan refinanced through a private lender cannot “revert” the loan to the federal system to benefit from IDR or the PSLF provisions mentioned above.

For more information about the new SAVE Plan, and to see monthly payment estimates based on income and family size, visit the federal student aid website. For many borrowers, taking full advantage of the benefits of this plan will require assessing its details and acting early. As always, if you have questions about how IDR can be leveraged within the context of a larger financial plan, reach out to your financial advisor for a consultation.