COLLEGEBUDGETING

Student Loan Repayment: The SAVE Plan

In August 2023, the Department of Education announced its new Income-Driven Repayment (IDR) Plan, the Saving on a Valuable Education (SAVE) Plan. The SAVE Plan determines monthly payments based on income and family size. It replaced the Revised Pay As You Earn (REPAYE) Plan, so borrowers who were previously enrolled in the REPAYE Plan were automatically switched to the SAVE Plan.

Let’s dig into the benefits of the SAVE Plan, which loans are eligible for this repayment method, and how to apply for or switch to the SAVE Plan, if you’re interested.

Benefits

• The SAVE Plan can significantly lower monthly payments due to a smaller amount of the borrower’s adjusted gross income (AGI) being used to calculate monthly payments.

• Borrowers who pay what they owe will no longer see their loan balance grow due to interest because of a unique SAVE Plan benefit. This applies to subsidized and unsubsidized loans after the scheduled payment is made in full. For example, if a borrower makes their full monthly payment but the payment is not enough to cover the accrued monthly interest, the government will cover the rest of the interest that accrued that month. This means the borrower’s loan balance will not increase due to unpaid interest.

• The SAVE Plan is slated to provide borrowers who originally borrowed $12,000 or less forgiveness after as few as 10 years.

• Benefits include changing undergraduate loan payments from 10% to 5% of discretionary income, forgiveness in as soon as 10 years (instead of 20-25 years) based on the amount borrowed, allowing loan consolidation without the loss of progress toward forgiveness, and forgiveness credit for forbearances and/or deferments.

Eligibility

• The following loans are eligible for the SAVE Plan:

• Direct Subsidized and Unsubsidized Loans.

• Direct PLUS Loans made to graduate or professional students.

• Direct Consolidation Loans that did not repay any PLUS loans made to parents.

• The following loans are eligible for the SAVE Plan if consolidated into a Direct Consolidation Loan:

• Subsidized and Unsubsidized Federal Stafford Loans (from the FFEL Program).

• FFEL PLUS Loans made to graduate or professional students.

• FFEL Consolidation Loans.

• Federal Perkins Loans.

• The following loans are ineligible for the SAVE Plan:

• Direct PLUS Loans made to parents.

• Direct Consolidation Loans that repaid PLUS loans made to parents.

• FFEL Program Loans (some types can become eligible if consolidated).

• Federal Perkins Loans (can become eligible if consolidated).

• Any loan that is currently in default.

How to Apply

If a borrower was part of the REPAYE Plan, they were automatically enrolled in the SAVE Plan. If the borrower is in another type of IDR Plan, they can switch to the SAVE Plan by logging in to manage their Income-Drive Repayment Plan at StudentAid.gov/idr. Other eligible borrowers can apply using the Income-Driven Repayment Plan application at StudentAid.gov/idr.

Student loan borrowers should log in to review their student loans to determine the repayment plan they are enrolled in. There are a variety of repayment plans available, so comparing the SAVE Plan with other plans may be a valuable way to make an informed decision. After this, borrowers can determine whether the SAVE Plan is the right option for them. Repaying student loans can seem daunting and confusing, but with more information, borrowers can feel more knowledgeable and empowered to make choices that support their financial goals.

Sources:

https://studentaid.gov/announcements-events/save-plan

https://www.whitehouse.gov/briefing-room/statements-releases/2023/08/22/fact-sheet-the-biden-harris-administration-launches-the-save-plan-the-most-affordable-student-loan-repayment-plan-ever-to-lower-monthly-payments-for-millions-of-borrowers/

https://studentaid.gov/idr/