What is the SAVE Plan for Student Loans?

It’s no secret that life post graduation brings a lot of changes, and when student loans are added to the mix, this can mean a new monthly payment that only adds to the stress of this transition. But did you know that, for federal student loans, you may be able to adjust your payment plan to better suit your needs? Today, we are breaking down the Saving on a Valuable Education (SAVE) Plan. 

What are income driven repayment plans?

An Income Driven Repayment (IDR) plan allows borrowers with federal student loans to adjust their monthly payment based on their income and family size. For lower income people and families, this results in a lower monthly payment, sometimes even as low as $0 a month. There are four different types of plans that the U.S. Department of Education offers. The  SAVE plan, formerly known as the REPAYE plan, is what we’ll be breaking down today. 

Other plans offered include:

• The Pay As You Earn (PAYE) Repayment plan
• The Income-Based Repayment (IBR) plan
• The Income-Contingent Repayment (ICR) plan.  

Learn more: Student Loan Definitions

What is the SAVE Plan?

The Saving on a Valuable Education (SAVE) Plan is the newest Income-Driven Repayment (IDR) plan for federal student loans. This means that the amount you pay per month is determined by how much money you make. Most IDR plans are based on your gross income, but what makes SAVE different is that it’s based on your discretionary income. Your discretionary income, unlike your gross, takes into account your family size. Your family size counts yourself, your spouse, and your dependents. 

Another important factor of the SAVE plan is that the U.S. Poverty Guideline exemption has been increased from 150% to 225%. Therefore, if you have a low enough income and your discretionary income is considered to be $0, your monthly payment will also be $0. On average, borrowers who do not meet the minimum income requirement will save about $1,000 a year. 

What is the minimum in a SAVE plan?

Your minimum monthly payment will depend on your discretionary income, but it could be as low as $0. For example, if you make up to $32,800 or about $15 an hour, your payment would be $0. If you have a larger family, for example, a family of 4, then you would still have a $0 monthly payment if you make $67,500 a year or less. If you make more than the minimum discretionary income, then your payment will not be exempt, but it will still most likely be lower than other IDRs.

What kind of federal loans are eligible for the SAVE Plan?

As long as your federal loans are not in default, they should be eligible for the SAVE plan. However, depending on your loans, you may need to consolidate them into a Direct Consolidate loan. You can find a full table on Federal Student Aid’s website. Ineligible loans include:

• Direct PLUS Loans made to parent borrowers, and
• Direct Consolidation Loans that repaid a Direct or FFEL PLUS Loan made to a parent borrower

How will the SAVE plan affect my interest rates?

SAVE has interest benefits that should prevent your balance from growing. If you make your full payment each month, SAVE will eliminate 100% of your remaining monthly interest. An example that the SAVE plan gives is that if your monthly payment is $50 because of interest, but you have an scheduled payment of $30, the government will pay the remaining $20, so long as you make your payment on time. 

See also: How to Consolidate and Refinance Student Loans

Other Benefits of the SAVE Plan Coming this Summer

There are more updates and benefits for the SAVE plan that will take effect July of 2024. These benefits will make it so monthly payments are even lower for most borrowers. For starters, undergraduate student loan payments will be reduced from 10% to 5% of your discretionary income. 
Another big benefit coming into place is that loan forgiveness may be available to borrowers in 10 years, rather than 20 or 25 years. Along with the shortened timeline, borrowers who wish to consolidate their student loans no longer have to worry about losing their progress towards loan forgiveness. Those who have had periods of deferment and forbearance will automatically be credited for loan forgiveness as of July 1st, 2024.

Key Takeaways

• With the new SAVE Plan, formerly known as REPAYE, eligible borrowers can pay as little as $0 a month on their monthly federal student loan payments.
• Instead of using your gross income, this program uses your discretionary income, which takes into account your family size, in order to calculate your minimum monthly payment. 
• There’s also an interest benefit that prevents the balance of your student loans from growing due to unpaid interest.
• Long term goals for the program consist of lowering loan forgiveness programs to be 10 years instead of 20 years and lowering payments from 10% to 5% of borrowers discretionary income. 

Frequently asked questions about the SAVE Plan