A new student loan repayment plan can halve your monthly student loan payments (if you qualify). The new Saving on a Valuable Education (SAVE) Plan is the latest income-driven repayment (IDR) plan. It calculates your monthly payment amount based on your income and family size. Many will benefit from the SAVE plan with lower, or even no monthly payment. In this blog, we explore everything that you need to know about the SAVE repayment plan.
What is the SAVE repayment plan?
The Saving on a Valuable Education (SAVE) calculates payments based on a borrower’s income and family size. It doesn’t take into account how much student loan is owed. Many borrowers will be able to cut their monthly payments to zero, while others will be able to save around $1,000 a year. In addition, it will prevent balances from growing due to unpaid interest, allowing more borrowers to reach forgiveness sooner.
What are the changes under SAVE?
- Lower monthly student loan payments. Student loan payments for undergraduate loans are reduced from 10% to 5% of discretionary income. Your monthly repayment will average between 5% and 10% of your discretionary income if you hold both undergrad and graduate student loans.
- More of your income is exempt. The SAVE Plan significantly decreases monthly payments by increasing the income exemption from 150% to 225% of the poverty line. This may significantly reduce your monthly payment compared to other IDR plans.
- The plan eliminates 100% of the remaining interest for both subsidized and unsubsidized loans after a scheduled payment is made. This means that if you make a monthly payment, your loan balance won’t increase due to unpaid interest.
- Spousal income is excluded for borrowers who are married and file separately. This means that your spouse will no longer need to cosign your IDR application.
When can I apply for the SAVE Plan?
You can now enroll in the new SAVE Plan through the updated IDR application. If you are enrolled in the REPAYE Plan or recently applied, there is no need to reapply or request to change your plan. You will be automatically enrolled in the SAVE plan.
How do I apply for the SAVE Plan?
You can apply for the SAVE plan through the IDR application.
What if I’m already on an IDR plan?
If you are already on an IDR plan, log in to StudentAid.gov, go to your My Aid page, scroll down, and view your loans and which loan repayment plan you have. If you are enrolled in the REPAYE Plan, you don’t need to do anything as you will be automatically enrolled in the SAVE Plan. If you have a different repayment plan, you can enroll in the SAVE plan through your account.
Which loans are eligible and ineligible for the SAVE Plan?
| Eligible Loans | Loans that must first be consolidated into a Direct Consolidation Loan to be eligible | Ineligible Loans |
|---|---|---|
| Direct Subsidized Loans | Subsidized Federal Stafford Loans | Direct PLUS Loans made to parents |
| Direct Unsubsidized Loans | Unsubsidized Federal Stafford Loans | Direct Consolidation Loans that repaid PLUS loans made to parents, |
| Direct PLUS Loans made to graduate or professional students | FFEL PLUS Loans made to graduate or professional students | FFEL PLUS Loans made to parents |
| Direct Consolidation Loans that did not repay any PLUS loans made to parents | FFEL Consolidation Loans that did not repay any PLUS loans made to parents | FFEL Consolidation Loans that repaid PLUS loans made to parents |
| Federal Perkins Loans | Any loan that is currently in default |
How much will I pay each month?
The SAVE plan monthly payments are calculated based on your income and family size. If you make $32,800 per year or less, your monthly payment will be $0. If your income is higher than that, you could save at least $1,000 per year compared to other IDR plans.
If you’re 35 years old, have $150,000 in student loans, and work for the government, you can potentially save money by enrolling in SAVE. If you’re enrolled in the 10-year standard payment, your monthly payment can potentially go down by several hundred dollars. If you’re currently enrolled in Pay As You Earn or REPAYE, your monthly payment can potentially go down by roughly a hundred dollars. Unpaid interest will not be added to your student loan balance. And if you enroll in the Public Service Loan Forgiveness program, you can have your entire federal student loans forgiven after working for the government for 10 years!
What are some pros and cons of the SAVE repayment plan?
Pros
- Affordable monthly payments: Payments on the SAVE plan are capped at 10% of your discretionary income. From summer 2024, the payments for undergraduate loans will be capped at 5% of your discretionary income.
- Payments may even be $0: You can earn up to $32,800 (or up to $67,500 for a family of four) without paying anything toward your loans on the SAVE Plan.
- There is no capitalized interest: There are no additional interest charges after you’ve met your monthly payment. For example, if $70 in interest accumulates on your loan in a month, but your payment is only $40, you won’t be charged the additional $30.
- Forgiveness in as little as 10 years: Beginning in 2024, those with principal loan balances of $12,000 or less can have their remaining balances forgiven after just 10 years of payments on the SAVE plan.
- There is no spousal signature required: Your spouse no longer needs to co-sign your IDR application.
Cons
- If your income changes, your payments will also change: The SAVE plan is an income-driven repayment plan. Therefore the higher your income, the more you will pay each month. You also have to recertify your income every year to stay on the SAVE plan.
- Borrowers with mid-level balances won’t benefit as much: Your monthly payment on the SAVE plan is income-driven, whereas your monthly payment on the standard repayment plan is balance-driven. Therefore if your loan balance is high and your income is high your payments may be higher on the SAVE plan. Every situation is different so it’s a good idea to consult your financial advisor.
- Not available for parent PLUS borrowers: IDR plans are not available to parents who took out loans on behalf of their children.
>> LOOKING TO ACCELERATE YOUR STUDENT LOAN REPAYMENT? Schedule a free discovery call with one of our fee-only financial planners to discuss how we can help create a personalized student loan repayment strategy for you.
Is the SAVE plan better than the REPAYE plan?
The SAVE Plan replaced the Revised Pay As You Earn (REPAYE) Plan. Those who are on the REPAYE Plan will automatically be enrolled in the new SAVE Plan.
What are the differences between SAVE and REPAYE?
| SAVE | REPAYE | |
|---|---|---|
| 5% to 10% of discretionary income goes toward repayments. There are no payments required for single borrowers earning $32,800 or less annually and families of four earning $67,500 or less annually. | 10% of discretionary income goes toward repayments. | |
| The loan balance won’t increase due to unpaid interest. | Unpaid interest is added to the principal balance. | |
| Student loan forgiveness after 20 years for undergraduate loans, 25 years for graduate loans, and 10 years for borrowers who have less than $12,000 in debt. | Student loan forgiveness after 20 years for undergraduate loans and 25 years for graduate loans. | |
| Married couples who file separately can exclude their spouse’s income in payment calculations. | Spouse’s income is always included in REPAYE plan payment calculations. |
Is the SAVE repayment plan good?
Due to the higher protected income threshold, the SAVE repayment plan will result in lower monthly payments for most borrowers. However, in some cases, you may be better off sticking with a standard repayment plan or another income-based repayment plan depending on your repayment goals and income. There is a loan simulator tool on the Federal Student Aid website that you can use to compare all of the available repayment options. This will help you choose the best repayment option for your specific situation.
Enrolling in the SAVE plan in 2024
Before deciding on a repayment plan, it’s essential to evaluate your financial situation and consider your long-term goals thoroughly. Like other federal student loan repayment options, the SAVE Repayment Plan is a tool designed to make the path to financial freedom more manageable. Understanding your options and choosing the one that best suits your circumstances is a crucial step toward achieving your financial goals.
If you are in your 30s or 40s and interested in a comprehensive financial plan, please schedule a free discovery call with one of our fee-only financial planners today.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.
