“SAVE Plan: Lower Payments and Faster Forgiveness for Student Loans”

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How Does the SAVE Plan Work?

The new SAVE income-driven repayment plan replaces the Department of Education’s REPAYE plan, offering student loan borrowers a more affordable option. According to Experian data, student loan balances are the highest debt category in the country, totaling $1.39 trillion in June 2023. The Saving on a Valuable Education (SAVE) plan aims to help borrowers by offering lower monthly payments, shorter timelines for forgiveness, and reduced interest costs.

All borrowers with eligible federal student loans can enroll in SAVE, but whether it will help you save money and reduce loan payments depends on several factors.

How Does the SAVE Plan Work?

The SAVE plan addresses various aspects of income-driven student loan repayment, including income thresholds, interest accrual, and forgiveness timelines. Some aspects, such as the increased income threshold and interest waivers, are already in effect. Other parts, including the percentage change in discretionary income, new forgiveness timeline, and automatic recertification, will begin in July 2024.

Here’s how the SAVE plan impacts student loan debt repayment:

• Reduced Monthly Payments: Payment amounts for borrowers on the SAVE plan are a percentage of their discretionary income, defined as the difference between household income and 225% of the U.S. poverty guideline according to household size. The SAVE plan halves undergraduate student payments from 10% to 5% of discretionary income. Graduate students still have to pay 10%, but borrowers with both graduate and undergraduate loans will pay a weighted average between 5% and 10%.
• Higher Income Limits for $0 Payments: The SAVE plan increases the income level that qualifies for $0 monthly payments, leading to an additional 1 million low-income borrowers eligible for $0 monthly payments.
• Shorter Loan Forgiveness Timeline: The SAVE plan allows borrowers to earn loan forgiveness in as little as 10 years. Previous repayment plans required borrowers to make payments for at least 20 years.
• Less Interest Accrual: With SAVE, borrowers’ loan balances will no longer increase due to unpaid interest if they make their minimum payment and the interest amount is bigger than the payment.
• Easier Access for Borrowers: The SAVE plan makes it easier for borrowers to enroll and recertify. Borrowers can grant the Department of Education access to their tax returns, eliminating the need to manually provide the information when applying to the program for the first time or recertifying annually.

Who Qualifies for the SAVE Plan?

Any former undergraduate or graduate student with eligible federal student loans can enroll in the SAVE plan. Loans are not eligible if they are in default. Federal loans for parents, including the direct PLUS loans, also do not qualify for the plan. Certain loans, such as FFEL and Perkins loans, must be consolidated into a direct consolidation loan before they can qualify for SAVE.

SAVE payment plans are based on a borrower’s loan amount, income, and family size, so each borrower’s payment amounts can differ.

How to Sign Up for the SAVE Plan

The SAVE plan replaces REPAYE, so you’ll automatically be switched over if you’re already enrolled in that plan. Borrowers who want to apply for SAVE for the first time must complete the following steps:

1. Gather the necessary information. You’ll need your FSA ID, telephone number, permanent address, financial information, and email address to apply.
2. Complete the income-driven repayment plan application. There’s one application for all income-driven repayment (IDR) plans. You do not need to complete a specific application for SAVE. Log in or create an account on StudentAid.gov. After that, you can complete the application, which should take less than 10 minutes.
3. Request the lowest monthly payment. As you complete the application, you can request the smallest monthly payment, which is usually the SAVE plan.

Is the SAVE Plan Right for Me?

Finding a repayment plan that works for your budget and life circumstances is important. The SAVE plan is a great option, but it may not make sense for everyone.

If you find yourself in the following circumstances, the SAVE plan might be the right fit:

• Your loan balance is less than $20,000. If your total balance is less than $20,000, you can receive loan forgiveness faster than on any other IDR plan.
• You want the lowest monthly payment. The SAVE plan is typically the best pick for borrowers who want the lowest monthly payment. Whether your budget is tight or you have big expenses on the horizon, lower payments can help you prioritize other necessary spending.
• You’re a low- to medium-income earner. With the SAVE plan, your payment amount varies based on income and family size. Borrowers with lower earnings typically benefit most from SAVE.

But the SAVE plan might not be the best fit if you find yourself in these situations:

• You have private student loans. Borrowers who only have private student loans are not eligible for the SAVE plan or any other IDR plan through the federal government.
• You want to pay off debt as soon as possible. The SAVE plan might not make sense if you’re interested in rapid debt repayment or paying more than the minimum. It prioritizes smaller payments over a longer timeframe.
• You’re a high-income earner. The SAVE plan aims to help borrowers with lower incomes. Borrowers with higher salaries might not benefit from SAVE since they are less likely to need help meeting their loan obligations.

Other Income-Driven Repayment Plans

Including the SAVE plan, there are four income-driven repayment plans available. As you consider which program makes the most sense, take time to review the other options:

• Income-based repayment (IBR): To qualify for IBR, your payment with the plan must be lower than what you’d make with a standard repayment plan under a 10-year repayment period. If you got your loan before July 1, 2014, the program caps loan payments at 10% of discretionary income with loan forgiveness after 20 years. Loans awarded after that date require payments of 15% of discretionary income with forgiveness after 25 years.
• Income-contingent repayment (ICR): On this plan, you’ll pay the lesser of 20% of your discretionary income and the payment you’d make on a fixed 12-year repayment plan, adjusted according to your income. Repayment lasts 25 years. This is the only income-driven repayment plan available for parents with direct parent PLUS loans. But you must first consolidate the PLUS loans into a direct consolidation loan. Other federal loans are eligible for the plan without consolidating, and any borrower with a qualified loan can apply.
• Pay As You Earn (PAYE) repayment plan: While SAVE will continue to roll out features over the next year, PAYE will begin to wind down. Borrowers can no longer apply for the program after July 1, 2024. Like SAVE, the PAYE plan bases payment amounts on income and family size. But eligibility requirements differ, and not all borrowers qualify.

The Bottom Line

As an updated version of REPAYE, the SAVE plan offers lower monthly payments, shorter forgiveness timelines, and higher income thresholds—all of which makes the program even more beneficial for borrowers.

The SAVE plan might be a solid option if you have federal loans and want smaller payments or a longer repayment period. But it’s not for everyone and might not make sense if you’re a high earner or eager to become debt-free as quickly as possible.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with the best mortgage solutions tailored to your needs.

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