The New SAVE Plan For Federal Student Loans

  • The SAVE (Saving on a Valuable Education) plan is the latest income-driven repayment plan initiated by the federal government
  • The SAVE plan offers several unique benefits that will lower payments and make them more affordable for many borrowers
  • This is the most affordable plan for student loan borrowers

The SAVE Plan replaces the REPAYE program and is currently the most affordable plan for student loan borrowers. This is because payments are based on a smaller portion of the adjusted gross income (AGI).

According to this plan, no borrower with an undergraduate loan will pay more than 5% of their discretionary income. In addition, some student loan borrowers won’t have to make any payments at all. This includes borrowers who are single and earning an annual income of less than $32,800 and borrowers who have a family of 4 and earn an annual income of less than $67,500.

On Jan. 12, 2024, the White House announced that 6.9 million borrowers are already enrolled in the SAVE Plan and 3.9 million have a $0 monthly payment. The same announcement went on to state that qualified borrowers enrolled in SAVE can get their remaining student debt canceled immediately. Borrowers will qualify for immediate student deb cancellation if:

  1. They have taken out less than $12,000 in loans.
  2. They have been in repayment for 10 years.

Current Benefits Of The SAVE Plan

The SAVE Plan offers multiple new benefits for borrowers. Some benefits went into effect in mid-2023 with the promise of more benefits coming in July 2024.

1. Your monthly payments are lowered by increased income exemption

The SAVE increases income exemption from 150% to 225% of the poverty line. This one change can lead to significantly lower monthly payments as compared to any other income-driven repayment plan. For the purpose of student loans, monthly payment amounts are based on the borrower’s discretionary income. If your discretionary income is $0, your monthly payments will also be $0.

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2. Your monthly payment amount could be $0

In 48 states across the country, 225% of the Poverty Guideline amount for a family size of one is $32,800. That means, if you are a family of one and you earn $32,800 or less per year, your discretionary income is $0. If you enroll in the SAVE plan your monthly payments will be $0. With the SAVE plan, your monthly payments will also be $0 if you are a family of four with an annual income of $67,500 or less.

3. The government interest subsidy offers additional benefits

The government interest subsidy offers additional benefits especially for borrowers with low monthly payments.

According to the terms of the SAVE plan, any accrued interest that’s not covered by your monthly payments will be covered by the government. Unlike other income-driven repayment plans, they do not get added to your principal balance. That means if you pay what you owe every month, your principal balance won’t increase due to unpaid interest. This feature of the SAVE plan sets it apart from other income-driven repayment plans where the loan balance grows due to unpaid interest.

Here’s how that would work: Let’s say you have a $40 scheduled payment and $65 in interest accrues each month. If you make your full monthly payment of $40 on time, the remaining $25 will not be added to your principal balance. Instead, the government will pay it off.

Additional Benefits Of The SAVE Plan Over The REPAYE Plan

We said earlier that the SAVE Plan replaces the Revised Pay As You Earn Repayment Plan (REPAYE). We also said the SAVE Plan offers several more benefits than the REPAYE plan. Here’s a look at the improvements of the SAVE over the REPAYE plan.

Under the terms of the SAVE Plan:

  • Eligible low-income borrowers make $0 monthly payments
  • Low-balance borrowers (those who borrow $12,000 or less) are required to make payments for only 10 years
  • Borrowers who have only undergraduate debt are required to pay 5% of their discretionary income instead of the 10% required under REPAYE
  • Borrowers’ balances will not grow if they are making their payments on time

 Which Federal Loans Are Eligible For The SAVE Plan

Almost all federal loans are eligible for the SAVE plan with a few exceptions.

All of these loans are eligible:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

These loans are eligible only if consolidated into a direct consolidation:

  • Subsidized Federal Stafford Loans (from the FFEL Program)
  • Unsubsidized Federal Stafford Loans (from the FFEL Program)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans
  • Federal Perkins Loans

These loans are ineligible for the SAVE plan benefits:

  • 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

If you have any student loans in default, you should check if you qualify for the Fresh Start initiative and follow the instructions on that page. This can help you get your loans back in good standing. Once you’ve done this, you can enroll in the SAVE plan, provided that you meet all the other criteria.

When Does The SAVE Plan Come Into Effect

The SAVE Plan replaced the REPAYE plan by the time the payments were due in October 2023. According to the original plan, all features of the plan were supposed to come into effect in July 2024 but some features have been fast-tracked. In a statement published on January 12, 2024, President Biden stated that starting in February 2024, individuals who borrowed $12,000 or less and have been in repayment for 10 years, will qualify to get their outstanding student loans cancelled immediately. This is part of the federal government’s ongoing efforts to help more borrowers get out from under a burden of student loan debt as quickly as possible.

The additional benefits of the SAVE plan will come into effect starting July 2024.

Is The SAVE Plan Right For You?

With its low or even zero monthly loan payments, the SAVE is a great option for most borrowers. However, it may not be the right plan for all student loan borrowers. There are a few things you must take into consideration before you enroll in the SAVE plan for federal student loans.

Do you want to pay off your federal student loan debt in a shorter period of time? If you are, the SAVE plan is not the best option for you. With this plan, the lower monthly payments will extend your payment period so you’ll take a longer time to be completely debt-free. Consider your long-term financial goals before choosing this plan.

The SAVE plan is most beneficial to low-income student loan borrowers. You may not qualify for the low or zero monthly loan repayments if you earn above a certain amount. If you don’t meet the plan’s requirements for low or zero monthly payments, you won’t enjoy the benefits of the plan. Instead, you it may be better to check out the other income-driven repayment plans.

To get started, use the Federal Student Aid Loan Simulator to compare your projected monthly loan repayments on different repayment plans. For this, you will need to enter details about your current repayment plan and current monthly payments. You can find this information when you log in to your account and go to your My Aid page.

Here you will find details about all your federal student loans including the types of loans and the amount you’ve borrowed against each loan type. You will also find details about your repayment plans. Use the comparisons to determine which repayment plan is best suited for you keeping in mind your current financial circumstances and long-term financial goals.

How To Enroll In The SAVE Plan

If you’ve determined that the SAVE is the best repayment plan for you, the next step is to enroll.

If you are already enrolled in the REPAYE program, your account will be automatically transferred to the SAVE plan. You don’t need to submit an additional application or request a change. However, it is a good practice to log in to your account and make sure that your account has been transferred.

If you’re currently not in the REPAYE program, you can submit the IDR application to apply for the SAVE plan. After submitting your application, you can check its status through your account dashboard.

Are you looking for a way to manage your student loans? College Raptor’s student loan calculator makes it easier to estimate your monthly student loan payments and overall loan costs.

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