Is the SAVE Student Loan Repayment Plan Right for Me?

If you have federal student loans, you’ve likely heard news about the new SAVE Plan, but is this plan right for you? Let’s review the details. What is the SAVE Plan? The Saving on a Valuable Education (SAVE) Plan is the newest income-driven repayment (IDR) plan available for Federal Direct loan borrowers. This rebranded and improved payment plan replaced Revised Pay As You Earn (REPAYE). Like all IDR plans, the payment is based on income and family size, rather than the loan balance and interest rate. The purpose of an IDR plan is to make payments manageable for borrowers who have high federal debt compared to their income. The SAVE Plan gives more borrowers access to lower payments. SAVE Plan Highlights The SAVE Plan is being implemented in three phases. The features already in place since federal repayment resumed in October 2023 include:

• Income Exemption: The income exemption was increased from 150% to 225% of the federal poverty guideline for a borrower’s household size and state. This exemption is the amount of income protected in full from the student loan payment calculations in order to meet basic living expenses. Income above this exemption is referred to as discretionary income and the SAVE Plan currently takes 10% of that discretionary income for annual student loan payments (divide by 12 to get your minimum monthly payment). When the math is said and done, a single borrower in the 48 contiguous states earning less than $33,900 annually (or a family of four earning less than $70,200) would have a $0 monthly payment due. Those with higher wages should see at least $1,000 savings per year under the SAVE Plan compared to payments under the old REPAYE Plan from this change alone. Utilize the Federal Student Aid Loan Simulator to calculate your monthly payment.
• $0/Low Payments: Borrowers who are eligible for $0 or low monthly payments that do not cover the accrued interest will not see their loan balances increase because the government is paying remaining interest.
• Tax Filing: Married borrowers who file taxes as “Married Filing Separately” will not have their spouse’s income included in the SAVE Plan calculation.
• Forgiveness: Borrowers who continue to repay under the SAVE Plan may obtain IDR forgiveness in as few as 10 years or up to 25 years. Borrowers must have borrowed $12,000 or less to have any remaining balance forgiven after 10 years. The term grows by one year for each additional thousand borrowed and caps at 20 years for borrowers holding all undergraduate loans and 25 years for those with any graduate debt.

February 2024 In recent news, the Department of Education announced it will begin processing forgiveness for those enrolled in the SAVE plan who borrowed $12,000 or less, and have been in repayment for 10 years or more. They will also encourage low-balance borrowers to apply for the SAVE Plan to potentially access forgiveness. The goal of early forgiveness with the SAVE Plan is to provide relief to community college students and others with lower loan balances, such as students who did not graduate, as they tend to default more often. Borrowers who have already been in repayment have the benefit of the one-time payment count adjustment, where all prior time in repayment will count towards IDR forgiveness. Going forward, borrowers entering repayment for the first time will need to have income somewhat relative to their debt to benefit from IDR forgiveness. A single borrower with a $12,000 Federal Direct loan at an average 5% rate would have a standard 10-year payment of about $127 per month. This sample borrower would need to earn less than $64,000 annually in order to have a SAVE payment less than $127. They could still enroll in the SAVE Plan if they earn more, but they would end up paying off their loan in less than 10 years, so there would be no balance left to forgive. July 2024 The SAVE Plan will be fully implemented as of July 2024 and will include:

• 5% Discretionary Income: The SAVE Plan will drop the percentage of discretionary income from 10% to 5% for undergraduate loans. This means undergraduate-only borrowers will see their SAVE payment cut in half beginning July 2024! Those with a mix of graduate and undergraduate loans will see a payment reduction based on the weighted average and graduate-only borrowers will not see a change in their SAVE payment.
• Automatic IDR Renewal: When you enroll in the SAVE Plan by completing the IDR application, the Department of Education will request that you provide consent for them to access your recent tax data directly from the IRS. In July 2024 and beyond, your servicer will automatically adjust your SAVE payment annually during your recertification month. However, you can still manually recertify if your circumstances change or if you do not give consent.
• Federal Consolidation: Borrowers who consolidate before May 2024 will not lose time in repayment towards forgiveness. Those who consolidate July 2024 and beyond will get credit for a weighted average of time in repayment.

How to Enroll Visit the Federal Student Aid website and complete the Income-Driven Repayment (IDR) Plan Request. This application will offer you estimates of the SAVE and other IDR plans, giving you the option to choose. Upon submission, the information will be released to your loan servicer who will finalize your new monthly payment. This process will take at least four weeks and the application gives you the option to put your loan in a processing forbearance while you wait.