Recent changes to student loan repayment plans may provide lower payments and earlier forgiveness depending on certain variables. The SAVE Plan is designed to help students succeed without extreme financial burdens.
What is the SAVE Plan?
The Biden-Harris Administration initiated the Saving on a Valuable Education (SAVE) Plan as a comprehensive effort to reform and improve the student loan system. It is an income-driven repayment (IDR) plan, which means payments are not based on loan balance but on discretionary income. Discretionary income is calculated using 225% of the Federal Poverty Level based on family size and state of residence.
The SAVE Plan replaces the Revised Pay As You Earn (REPAYE) Plan, though borrowers on the REPAYE Plan will automatically see the benefits of the SAVE Plan. For most borrowers, SAVE currently provides the lowest monthly payment option of any income-driven repayment plan.
How Does SAVE Impact Loan Recipients?
There are numerous benefits that borrowers may see under the SAVE Plan.
- Payments reduced by half: Undergraduate loans may be reduced from 10% to 5% of discretionary income for borrowers. Borrowers with undergraduate and graduate loans will have a weighted average of 5-10% of their income, but this will be based on original principal loan balances.
- $0 monthly payments for many borrowers: As an IDR, the monthly payment is based on discretionary income or the difference between adjusted gross income and 225% of the U.S. DHHR Poverty Guideline. Many more low-income borrowers may qualify, allowing them to focus on housing, food, and other necessities.
- Elimination of interest: SAVE eliminates 100% of the remaining interest for subsidized and unsubsidized loans when monthly payments are made as scheduled. This means your balance will not continue to grow due to interest charges.
- Early Forgiveness for Low-Balance Borrowers: Loans under $12,000 may be forgiven after 120 payments (10 years) instead of the previous 20 to 25 years of repayment. For each $1,000 borrowed, an additional 12 payments (1 year) are required for a maximum of 20 to 25 years. Payments made before 2024 and after will count towards the maximum forgiveness timeframes.
Who Qualifies for the SAVE Plan?
There is no income requirement. Any borrower currently enrolled in the REPAYE Plan will be automatically enrolled in the new SAVE Plan. Their monthly payment will be recalculated based on their adjusted gross income and family size during their last income certification. The new discretionary income calculation will be used.
The SAVE Plan is available to all Direct Loan borrowers who have eligible loan types, including:
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students and
- Direct Consolidation Loans that did not repay any PLUS loans made to parents.
The following loans must be consolidated into a Direct Consolidation Loan to meet eligibility requirements for the SAVE Plan:
- Subsidized or Unsubsidized Federal Stafford Loans (from the FFEL Program),
- FFEL PLUS Loans made to graduate or professional students,
- FFEL Consolidation Loans that did not repay any PLUS loans made to parents and
- Federal Perkins Loans.
How to Apply for SAVE
If your current repayment plan does not automatically enroll you in the new SAVE Plan, you can apply for SAVE through the Federal Student Aid website. The new income-driven application includes the option to enroll in the SAVE Plan, which you can fill out online. Finding the best repayment plan for your financial situation and future goals is the best way to ensure financial security and optimal repayment terms.
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