[EDITOR'S NOTE: Please be advised, the SAVE repayment plan is currently held up in the courts. We will update you at a later date when we have answers.]
The Department of Education has proposed changes to the existing income driven repayment programs (IDR) for those who have student loans. We thought the department was going to add a brand new plan so we would have had five IDR options, which could have further complicated how to select your repayment plan. Instead, the ED chose to simplify the existing repayment options and improve the REPAYE plan and rebrand it Saving On A Valuable Education or SAVE. Borrowers will become eligible for SAVE after student loan payments resume in October 2023.
The REPAYE or Revised Pay As You Earn plan was created in 2016. The old REPAYE plan had its pros and cons. Most of the cons have gone away with the SAVE plan. There are a couple of changes that are basically holdovers from the PSLF and IDR waivers you need to be aware of, as well.
Here’s what you need to know about the changes:
#1 Old REPAYE Becomes SAVE
Borrowers will be eligible for the SAVE program. Those with direct loans, regardless of when they borrowed or their current income, will be eligible for the SAVE program. If you have FFEL loans, you’ll need to consolidate those to enroll in REPAYE/SAVE.
If you’re already in REPAYE, you will automatically be moved into SAVE when loans move into repayment in October. You won't be required to submit your current income unless you are entering IDR or switching repayment programs.
#2 Switching from REPAYE to IBR
The old rule for switching from REPAYE to IBR or REPAYE to PAYE was that the borrower had to qualify for a partial financial hardship (PFH). A PFH is when your monthly payment as calculated in IBR or PAYE is less than what the payment would be in the standard 10-year repayment plan. As long as the borrower qualified for a PFH, they could change repayment plans at any time.
The new rule requires a PFH, and it won’t let a borrower switch from REPAYE to IBR if they already have made 60 monthly payments beginning July 1, 2024.
More information here:
REPAYE vs. Refinancing Student Loans as a Resident
#3 Monthly Payments Become More Affordable
Historically, monthly payments in REPAYE were 10% of discretionary income (more on this later) for undergrad, graduate, and professional degrees. SAVE will calculate payments at 5% for undergrad loans and 10% for graduate and professional loans. If you have a mix, a weighted average will be calculated to determine the percentage you’ll pay on a monthly basis. I suspect most of your loans are from your graduate program, so I don’t foresee the monthly payment changing much.
Here's a quick example to see how this would change for a doctor:
A single doctor makes $200,000 per year with a loan balance of $220,000 ($200,000 at 6% interest rate from medical school and 20,000 at 6% interest rate from undergrad).
Old REPAYE = 10%
SAVE = 9.55% (weighted average)
This would result in a lower monthly payment for this doctor. These percentages would not be recalculated unless the borrower takes on additional loans.
Now, let’s also talk about discretionary income. Discretionary income calculations are changing from 150% of the federal poverty guidelines to 225%. The federal poverty guidelines are set by the Department of Health and Human Services each year. For single borrowers, the poverty guideline is $13,590. The guideline increases by $4,720 for every person in your household. Here’s an example of how payments can change for a borrower using the prior example.
[EDITOR'S NOTE: Since the original publishing, they have a name change for the NEW REPAYE to SAVE.]
- Discretionary income is lowered by $10,193 due to 225% of the poverty guideline.
- Monthly payments drop $149 per month as a result of lower discretionary income and lower monthly calculation (9.55%).
- On an annual basis, this borrower saves $1,789 in student loan payments.
The numbers look better if you have a greater percentage of undergrad loans as compared to graduate loans. We will show more case studies at the end of this post.
#4 Unpaid Interest Subsidy Is Increased
In old REPAYE, if your monthly payment was less than the interest accrual (or interest charged), half of the interest would be waived. This was commonly referred to as the interest subsidy and was a huge benefit when selecting REPAYE over PAYE/IBR. With SAVE, all the unpaid interest would be waived. This appears to be particularly beneficial to those who are (or will be soon) in training or who have a high debt-to-income ratio. Now, your loans will no longer enter negative amortization—or when your monthly payment isn’t sufficient to cover the monthly interest.
The interest subsidy now waives all the unpaid interest monthly and drops the effective interest rate on the loans when your monthly payment isn’t sufficient to cover monthly interest accrual. Interest is ONLY waived in the REPAYE plan.
#5 Shortened Time Frame for Receiving Loan Forgiveness
This probably isn’t applicable to 99% of you, but if you borrowed $12,000 or less, you would receive loan forgiveness after a decade of payments in IDR. The loan forgiveness we are discussing here is taxable loan forgiveness. The loan balance is taxed as if it were income when you reach forgiveness, unlike PSLF which is not federally taxable.
For every additional $1,000 you borrow above $12,000, you add one additional year of monthly payments. Basically, if you borrow $27,000 or more, you would have 25 years until you reached forgiveness.
Please note: if you reach taxable forgiveness prior to 2026, there is no federal income tax on the loan balance forgiven. This reverts back to taxable in 2026 going forward.
More information here:
6 Tricks Medical Students Can Use for Their Student Loans
#6 Receive Forgiveness Credit for Certain Deferments and Forbearances
Since October 2021, we have had a number of waivers that temporarily granted borrowers forgiveness credit for deferments and forbearances like we’ve never seen before. But due to the temporary nature of these waivers, most of these benefits would expire. The PSLF waiver expired on October 31, 2022, and the IDR waiver is set to expire on April 30, 2024 (this waiver was originally supposed to end on December 31, 2023, but it has since been moved). This recent proposal will extend a couple of benefits from the waivers:
- Economic hardship deferment and Peace Corps service deferments.
- 12 months of consecutive forbearance or a minimum of 36 months of cumulative forbearance. Does this incentivize you to enter forbearance? It seems like it does. We assume the ED will tamper down on what it allows as forbearance.
- Cancer treatment deferments, military service deferments, national service forbearances, National Guard duty forbearances, post-active-duty deferments, Department of Defense loan repayment program forbearances.
- Certain administrative forbearances—we think this is your classification for when you switch repayment programs or consolidate your loans.
- Rehabilitation training deferments and unemployment deferments.
- Catch-up payments for borrowers in deferments or forbearances wherein a borrower would have a $0 monthly payment—our initial thinking is this may also include those who left their loans in a grace period right after graduation.
#7 Payment Count Is Not Reset After Consolidation
Typically, when you consolidated your federal loans, any previous repayment history was erased. This was done because the consolidation actually issues a brand new loan in place of the old two or more loans you included in the consolidation.
Instead of resetting your payment history, a weighted average of your existing accounts will be applied to the consolidation loan beginning July 1, 2023.
Please note: if you consolidate loans with differing payment counts before May 1, 2023, you would be eligible to take the loan with the highest payment count. Just make sure that if you’re doing PSLF, to resend your PSLF forms post-consolidation to your servicer.
#8 Help for Delinquent Borrowers
When a borrower misses a payment and they don’t call their servicer to put them into forbearance or deferment, their account becomes delinquent. After 270 days of delinquency, their loans will go into default.
Now, borrowers will be automatically enrolled into the IDR plan with the lowest monthly payment if they are 75 days behind on payments. Also, borrowers’ options can become quite limited when they enter default. They must choose to pay the loan off, consolidate, or complete a rehabilitation process. The new proposal will give borrowers the ability to access an IDR plan to allow for lower monthly payments and an easier exit from default back to good standing.
#9 Phaseout Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE)
To simplify repayment options, starting July 1, 2024, borrowers will no longer be able to enter the ICR or PAYE plan. But, borrowers who are already in these plans can stay in them, and they won’t be kicked out. If you are trying to get into either plan, make sure you switch repayment plans before the deadline.
REPAYE (soon to be SAVE) and IBR will be the only repayment options available to new borrowers. Only Parent Plus Loans borrowers will be able to enroll into ICR after a direct federal consolidation.
More information here:
10 Reasons You Should Pay Off Student Loans Quickly
#10 Ability to Exclude Spousal Income Through Married Filing Separately in SAVE
A common strategy for married borrowers is to file taxes married filing separately to exclude spousal income to lower monthly payments. This strategy was only available in the IBR, ICR, and PAYE plans. In SAVE, you can also exclude spousal income if you file taxes married filing separately (MFS).
This is a huge change for many of you trying to decide which repayment plan is best. Most people, if they were married to another earner and doing loan forgiveness, would avoid REPAYE because of the requirement to include spousal income regardless of how taxes were filed. It was an easy decision to pick PAYE over REPAYE to minimize payments. If they weren’t eligible for PAYE, it came down to running the numbers between IBR or REPAYE—which, if you were making more than you owed, favored IBR.
One other point of emphasis: IBR and PAYE, aside from the past ability to exclude spousal income through MFS, have a payment cap. This payment cap is based on what your monthly payment would be if you were in the standard 10-year repayment plan.
This ceiling does not exist with old REPAYE or newer SAVE. That means there is no payment cap in the REPAYE or SAVE plan. Further, this may end up being a more costly option than IBR or PAYE in the long run if you do loan forgiveness.
Here are a few scenarios:
SAVE beats PAYE
A dual-earning doctor and dentist with no kids. The doc makes $200,000, and the dentist makes $300,000. The doc borrowed $200,000 for med school and $25,000 for undergrad for a total of $225,000 at a 6% interest rate. The dentist paid off their loans already. They file married filing separately.
SAVE saves the doc $2,096 per year.
PAYE beats SAVE
The same fact pattern as above except the doc now makes $400,000.
PAYE saves the doc $4,940 per year. The difference is the payment ceiling that PAYE has that borrowers will run into if they make more than they owe.
IBR beats SAVE
Same fact pattern as about except the doc now makes $375,000.
IBR saves the doc $2,554 per year. IBR also has the payment ceiling.
In summary, if you make more than you owe and are currently on track to loan forgiveness, you might be better off staying put in IBR or PAYE. If you make less than you owe, SAVE would probably be the superior IDR plan.
For those who aren’t graduating until 2024, it is unlikely you’ll be eligible for PAYE. You’ll have to decide between SAVE and IBR.
This is another huge shakeup for income-driven plans and is helpful to some borrowers. As more details become available, we will continue to update you on changes. The ED's proposal is trying to simplify repayment options for borrowers, and it may sound great on paper. But we see this as another variable that may further complicate your current plan (or potential plan).
Rest assured, we will continue to provide you with relevant information and up-to-date commentary to save you money on your loans. If you need help interpreting these changes, contact our Student Loan Advice team today!
Are you impacted by these changes? Do you plan on switching repayment plans? Does the new proposal make your decision easier or more complicated?
Hi Andrew,
I’m an intern. 187k in loans. New to the financial stuff and been reading through all your helpful content. Is the 225% calculation for discretionary income only applicable to the SAVE plan? Or does IBR/PAYE plans use 150% in the calculation for discretionary income? I’m trying to break down your charts where PAYE/IBR beats out REPAYE/SAVE.
Thanks.
J-PMR,
225% is only for SAVE. IBR/PAYE/REPAYE use 150% and ICR is 100%.
Andrew SLA
Thanks so much.
Before all the changes, the previous route most people went through was REPAYE and then PAYE before they became an attending.
Thank you!
Before all the changes, the most common route I was seeing was REPAYE during residency and then PAYE before someone became an attending for the monthly payment cap. In light of all the changes, would you say that the new recommended route will be REPAYE/SAVE during residency and then switching to IBR or refinancing once an attending? That is assuming, a debt to income ratio <1.5 and because PAYE and IBR both have the monthly payment cap. I'm also aware that you can't switch to IBR after 60 payments.
J-PMR,
That does sound about right. The only thing i’d amend is no one can enroll or switch into PAYE after July 1, 2024. So if you need to cap your payments, you’ll want to consider IBR before graduating training.
Andrew SLA
Hello,
I am an attending hospitalist now for 2 years. Currently on PAYE as my wife is still in residency. I was considering refinancing my current federal loan with SOFI for a better interest rate, but I recently submitted an application for the SAVE plan.
The person I spoke to from MOHELA said that my interest payment would essentially be $0.00 as long I make my monthly payment in full. The rep said my monthly payment would be 1500 dollars, and I asked him if all of that goes toward principal, and he said yes. I found it a little hard to believe, but he reassured that my interest payment is 0 and my monthly payment is 1500 and all of that goes toward principal with no pre-payment penalty.
is this right?
thank you
Zane Ahmed,
Hard to answer this question without the full picture on your loan balance, interest rate and income. I think for the first year out of the student loan pause he is right that your interest will be fully covered by a subsidy and you’d be able to directly paydown your principal. If you’re just planning on paying your loan off aggressively and can’t get great interest rates right now then you could make payments in SAVE.
Andrew SLA
Hi Zane Ahmed,
Hard to fully answer this question with no idea how much you owe, the interest rates or what you’re making. The only situation where I could see this is the case is if you are already in REPAYE and your payments are still based on income all the way back in 2018/19. You’d be able to qualify for the generous interest subsidy If you are switching from PAYE/IBR/ICR to REPAYE/SAVE, your payments would be based on last years income. Generally, when you are at attending income you make too much to benefit from the interest subsidy I talk about in #4 above.
Andrew SLA
I am anticipating graduation from fellowship in 2025. Currently enrolled in REPAYE which will switch to SAVE automatically, which I like for now since it minimized monthly payments and prevents interest accrual.
I have 225k in loans and anticipate a post fellowship salary of ~350-400k with 5 more years left of payment to make PSLF. Would it make sense for me to switch into IDR just before my attending salary kicks in so that I have a payment cap?
Thanks!
Not so clear cut. I think you’d have to run the numbers on that one. If you need some help doing that, you can book an appt at https://calendly.com/studentloanadvice/student-loan-consult?month=2023-08
Hi Andrew,
Thanks for your helpful guidance and advice. I’m a psychotherapist with $250K in student loans, mostly graduate school. I’m in private practice, so not aiming for PSLF. Forgiveness possible at 300 payments (I’m a third of the way in) and then, unlike PSLF, I will be taxed on the forgiven amount. I’ve consolidated to a Direct Loan and applied to SAVE. Here’s my question: If I pay more than my required minimum and I’m not looking at PSLF (because what would be the point in that case), would my over-payment go toward principal or simply lessen the interest subsidy? Thank you–I can’t seem to find this answer on the Web.
Hi Lauren,
The overpayment woudl go to interest. But you shouldn’t do that if you are doing 25 year forgiveness. The objective is the same as PSLF. Make the lowest monthly payment possible. Don’t overpay.
Andrew SLA
Thanks, Andrew! That makes sense!
Hello,
I am currently under REPAYE with about 117K in debt and income around 210K. I am working towards PSLF and have about 3 years left. With payments starting up soon, I wonder if I should switch to PAYE so that I can take advantage of the payment cap. I don’t think I would be eligible given my debt to income ratio. Am I wrong in this assumption and is PSLF even worth it give my scenario?
Jeffrey,
You probably can’t switch to PAYE with your current debt to income ratio. I suspect you’d probably still save money with PSLF with you only 3 years out right now if you stay on REPAYE (now SAVE).
You could also try the standard 10 year repayment plan. That one qualifies as well.
Andrew SLA
Thanks
3 years left? Yea, PSLF is worth it. But as far as the PAYE/REPAYE/SAVE question, just run the numbers. What’s your payment? What will it be the next time you certify income? Would it be lower under a cap? Are you even eligible to switch at this moment?
Might be worth the money to meet with studentloanadvice.com too.
I’m trying to determine if I should stay in PAYE or enroll in SAVE while pursuing PSLF. I’ve heard a lot of people ask this but haven’t seen a clear answer. I’ve already consolidated and done the paperwork and just finished first year of residency. I’m in the military but joined after an 80k loan for the first year. Between residency and payback I’ll be at 9 years and will probably fellowship in the military which would put me at 10 years. Then we’ll leave the military. My wife stays at home and we have 4 soon to be 5 kids, so our payments are $0 and should be very low for a long time and will slowly increase.
Is there a link to a blog post I’m missing that compares new SAVE to PAYE? I’m thinking if my payments are going to be low for quite a while nothing would change, we should just stay in PAYE?
ps you’re doing life changing work and we tell everyone about you guys!
It’s because the answer is different for everyone, so you must run YOUR numbers. PAYE is only good for those who need the payment cap (low debt to income ratio) and those going for IDR forgiveness.
To clarify re: the interest accrual on SAVE… as long as you make your monthly minimum payments, is the interest rate essentially 0% then? If so, does it make sense to refinance to a private loan now where you’d end up with a 4 to 6% rate, or can I just treat my student loan in SAVE as a low/no-interest debt that I pay off slowly over time? (I’m not pursuing PSLF). Thank you for your insight!
CK,
This is partially correct. The interest rate is only zero if your payment in SAVE is zero. If your payment is less than the monthly interest charged, then the unpaid interest is waived (aka the subsidy). If your payment is more than the monthly interest then you don’t have any subsidy because you’re paying all of the interest each month.
The subsidy in SAVE generally only works when your income is less than your debt. It could make sense to refi if you are making more than you owe and have a 7% federal rate.
You should really run the #s on this. We can help you out if you’d like. StudentLoanAdvice.com/book
Andrew SLA
I’m trying to determine if SAVE makes sense for my situation. Current law school student loan balance is $234,000. I’ve been paying for quite some time and was just moved to SAVE. AIG is $200K. I have about 8-10 years left on my loans to hit 20 years. My monthly interest that accumulates is $1200/month. It’s brutal.
Based upon SAVE calculation, when I recertify, my monthly payment will equal around $1200, which would cover my monthly interest. No movement on the balance. As I anticipate making more next year, and assume that my monthly amount increases to $1400, the $200 leftover would go towards my principal. Assuming I shave off anywhere from $100-500/month in principal balance every month for the next 8 months, I will still be left with a substantial balance that would be “forgiven”. However, I would have already paid more than half of my balance (which would have mostly gone to interest), and then I would have to be taxed on the amount forgiven.
Does it make sense for me to continue on SAVE for 8 years to end up with about$200,000 balance to be forgiven (and subsequently taxed), or would it be better to move to a different payment plan altogether? Alternatively, if I have $150K in savings, does it make sense to pay off $150K and then pay the rest under a different program for the remaining 8-10 years?
Thank you.
I think you’d benefit from a consultation with https://studentloanadvice.com/ to help you run the numbers to decide between paying it off and keeping it. But if I paid $150K toward it, I would pay the rest off within a year or so if it were me.
I’m an attending physician in my 2nd year of practice with a salary of $425k. I have $200k of med school loans (direct loan consolidation subsidized and direct loan consolidation unsubsidized).
I’ve completed 7 years of PSLF with PAYE (6 years residency, 1 year fellowship and first year of attending). I was finally asked to recertify for PAYE by Mohela in Nov 2023 (first recertification with half fellowship/half attending salary) and my request was rejected “based on adjusted gross income, family size, and/or outstanding eligible federal student loan debt, I do not qualify for the repayment plan requested.” Is that because my PAYE amount is above the 10% cap? I thought even though it was capped, I would still be able to stay on the plan so I’m a bit confused on why the recertification got rejected. Do I switch to the Standard 10 year repayment plan for the remaining two years of my PSLF I have left and will this still qualify for PSLF?
Thank you for the help!
CM,
You shouldn’t be kicked out. You should be able to stay in PAYE. They may just now call it the standard 10 yr plan.
You can’t leave PAYE and enroll into the Standard 10 year plan. Because you consolidated your student loans, your standard repayment schedule is at 30 years. It is not a qualifying repayment plan for PSLF.
Andrew SLA
Thanks so much for your quick response Andrew. I was able to get ahold of Mohela today, and you’re right. I basically don’t need to do anything and my payments will go to the “standard 10 year plan” which is about $1900 a month and will still qualify for PSLF. I think it’s just their confusing wording saying that my application for PAYE was denied, when they really mean that I just don’t qualify for partial financial hardship anymore.
Hopefully I just need to do the next 2 years of payment at this maximum amount and then PSLF will come through at that time. Thanks again!
Hi Andrew,
Thank you for the detailed post. I have about 700k total of debt (dental and medical school). I am finishing fellowship this summer and starting job (approximately $500k salary). I have not started paying. Current loan interest rate is at 6.2%. Should I apply for SAVE or PAYE at this moment or looking to refinance?
My goal is to be debt free as soon as possible.
Probably not quite enough info to answer, but probably SAVE for at least a year before refinancing.
I have about $180k in med school loans and am finishing fellowship this July. I am taking a private practice job at a non-profit hospital in California expecting to make around $500k. After this year I will have 57/120 payments towards PSLF. My loans are currently enrolled in SAVE. I was planning to refinance and pay off the loans, but recently found out about the California loophole. Should I refinance and pay off loans or go for PSLF? Switch to PAYE from SAVE?
Thank you.
DH,
You need to enroll into PAYE now to cap your payment. You’d definitely come out ahead with PSLF if you’re working at a qualifying employer. Check out this other post I wrote just the other day that talks about how PAYE is phasing out this year in July. Make sure you act on this quick.
https://www.whitecoatinvestor.com/paye-is-going-away-is-save-your-optimal-repayment-plan/
Andrew SLA
If you expect to be eligible for PSLF, it almost always works out best to go for PSLF. Sounds like that’s you. You can still put the payments you would have used to pay the loans off rapidly into a PSLF side fund and if you change jobs you can then direct that money to the loans.