The Saving on a Valuable Education (SAVE) program, a new income-driven repayment (IDR) plan announced in the summer of 2023, promises to offer a salve to federal student loan borrowers who are bracing themselves for the resumption of payments in fall 2023.
The SAVE plan could potentially alleviate the loan burden by reducing some borrowers' student loan payments to a staggering $0. Others could potentially witness an annual saving exceeding $1,000 when compared to alternative plans.
What is the Saving on Valuable Education (SAVE) Plan?
The SAVE plan replaces the existing Revised Pay As You Earn (REPAYE) Plan, automatically extending its benefits to those previously enrolled in the REPAYE Plan.
Similar to other income-driven repayment (IDR) plans, the SAVE Plan calculates your monthly payment amount based on your income and family size.
Why is the SAVE Plan important?
As outlined on the Federal Student Aid website, the SAVE plan offers several critical benefits. Firstly, the program enables students to make interest payments while still in school, which can significantly reduce the overall cost of their loans. The payments are also flexible, allowing students to pay as much as they can, even if it's less than the full interest amount.
Moreover, students who participate in the SAVE program can potentially save hundreds, or even thousands, of dollars over the lifetime of their loan.
The SAVE Plan's estimated effects are significant for low- and middle-income borrowers, community college students, and public service workers. Compared to the existing REPAYE plan, the SAVE Plan offers the following benefits for future borrowers: a 40% reduction in total payments per dollar borrowed, with the lowest earners seeing an 83% decrease and top earners experiencing a 5% reduction.
Graduates of four-year public universities can save nearly $2,000 per year, while first-year teachers pursuing Public Service Loan Forgiveness can save over $17,000 in total payments. Additionally, 85% of community college borrowers will be debt-free within 10 years, and minority borrowers will see a 50% reduction in total lifetime payments per dollar borrowed.
All stats referenced above can be found here.
What are the key benefits of the SAVE plan?
The SAVE (Saving on Valuable Education) plan will fully become law by July 1, 2024, but the following three crucial benefits will be implemented earlier.
- The plan increases the amount of income that’s protected from payments. The income bracket protected from SAVE plan payments will increase from 150% to 225% of the Federal poverty guidelines (FPL). This means any single borrower earning less than $32,805 annually, or a family of four earning less than $67,500, will not have to make any payments. This change is estimated to qualify an additional 1 million low-income borrowers for a $0 payment, and those not eligible for $0 will still save at least $1,000 a year.
- If you make a monthly payment, your loan won’t grow due to unpaid interest. The Biden administration estimates that 70% of borrowers who were on the Income-Driven Repayment (IDR) plan before the payment pause will benefit from this.
- Married couples who file their taxes separately, don't need to include their spouse's income when calculating their payments. Additionally, when filing separately, their spouse is not considered a part of their family size in the calculation, which can result in lower monthly payments.
When the SAVE plan is completely implemented in July 2024, borrowers can anticipate significant reductions to both their monthly and lifetime payments.
Payments will be cut in half for undergraduate borrowers. Payments on undergraduate loans will be reduced from 10% of income above 225% of the poverty line to 5% of income above that threshold, which should cut monthly payments in half.
Payments will be lowered for borrowers with both graduate and undergraduate loans. For borrowers with both undergraduate and graduate loans, payments will be based on a weighted average of 5% to 10% of their income, relative to their original loan principal balances.
Borrowers with smaller loans could reach loan forgiveness faster than with other plans. Borrowers whose principal balances were $12,000 or less can now receive forgiveness after 120 payments or 10 years. For every $1,000 borrowed over $12,000, an additional 12 payments will be required up to a maximum of 20 or 25 years.
Read more on these benefits and when they will go into effect here.
Is the SAVE Plan the same as loan forgiveness?
No, it’s not student loan forgiveness (like the forgiveness plan the court struck down). You are required to make payments on your loans.
Who is eligible for the SAVE Plan?
SAVE is for student borrowers with federally held loans.