By Jamie Johnson, WCI Contributor
In the summer of 2023, the Joe Biden administration unveiled a new program designed to help student loan borrowers. The Savings on a Valuable Education (SAVE) Plan is an income-driven plan that could significantly reduce your monthly loan payments. When student loan payments resumed in October 2023, many borrowers saw their monthly payments cut in half or eliminated altogether. But the SAVE Plan won’t benefit everyone. Here’s what you need to know before applying.
What Is the Saving on a Valuable Education (SAVE) Plan?
The SAVE Plan is a new Income Driven Replayment (IDR) plan that essentially replaces the old REPAYE plan and calculates your monthly payments based on your income and the size of your family. You won’t owe any loan payments if you’re a single borrower earning $32,800 or less or a family of four earning $67,500 or less. If your income exceeds those limits, you’ll still save at least $1,000 per year compared to other IDR plans. And as long as you make your monthly payment, your balance won’t grow because of unpaid interest. That interest instead is waived by the federal government.
If your principal loan balance is $12,000 or less, your loans will be forgiven after 10 years on the SAVE Plan. For every $1,000 you borrowed above $12,000, you’ll have to make an additional year of payments. The repayment term length maxes out at 20-25 years, depending on your degree.
More information here:
Should I Pay Off My Student Loans?
Who Qualifies for Biden’s SAVE Plan?
Federal loan borrowers and anyone who consolidated their loans through the former Federal Family Education Loan Program (FFEL) are eligible for the plan. However, Parent PLUS loans are not eligible for SAVE.
How Much Will I Pay Each Month Using The SAVE Plan?
According to the Department of Education, single borrowers earning less than $32,800 a year—or roughly $15 per hour—won’t have to make any payments. Even if you earn more than this, you should still save money. Your payments are capped at 10% of your discretionary income, which is the difference between your gross adjusted income and 225% of the federal poverty line. According to the Department of Education, a single borrower earning $38,000 per year will pay an estimated $43 per month.
Pros and Cons of the SAVE Plan
Pros
- Low monthly payments: Single borrowers earning less than $32,800 per year and families earning less than $67,500 per year won’t have to make any student loan payments. Your monthly payments are still capped at 10% of your discretionary income if you earn more than this.
- Cap on interest: If you make your monthly payments each month, you won’t accrue any additional interest charges. This prevents interest from continuing to accumulate as you pay down your loans.
- Loan forgiveness: Borrowers with loan balances of $12,000 or less will receive loan forgiveness in 10 years. For every $1,000 you borrowed above that, you’ll make an additional year of repayments up to a max of 25 years.
- You can exclude your spouse's income: If you file taxes Married Filing Separately (MFS), SAVE allows you to not count your spousal income. This is a great benefit, especially if your spouse is a high earner.
Cons
- Not as beneficial for higher balances: On the standard repayment plan, your balance is paid off after 10 years regardless of the original balance. But on the SAVE Plan, borrowers with higher balances may have to make payments for the full 20-25 years.
- Payments are based on income: Since monthly payments are income-based, this plan is the most beneficial for low and moderate-income borrowers. As your income increases, your payments will increase accordingly.
- Potential income taxes: Depending on where you live, you may owe income taxes on any student loan debt that’s forgiven. Many states treat forgiven debt as taxable income.
More information here:
Should I Pay Off Student Loans or Invest?
How to Enroll in the SAVE Plan
The SAVE Plan is replacing the Revised Pay as You Earn (REPAYE) plan. If you’re already enrolled in REPAYE, you’re automatically enrolled in the new SAVE Plan. You can log into your My Aid account to see in which plan you’re currently enrolled.
If you aren’t currently enrolled in an IDR plan, you can apply on the Department of Education’s website. It should take about 10 minutes to apply, and you’ll need the following information:
- A verified FSA ID
- Your financial information
- Your personal information
- Your spouse’s information, if applicable
Who Does the SAVE Plan Make Sense For?
The SAVE Plan makes the most sense for federal borrowers earning a low or moderate income. If your income is low enough, you may not have to make any monthly loan payments. And borrowers with outstanding balances of $12,000 or less will receive loan forgiveness in just 10 years. Borrowers who qualify for the Public Service Loan Forgiveness (PSLF) program can also sign up for the SAVE Plan and maximize their benefits. In particular, teachers and social workers stand to benefit by combining the SAVE Plan and PSLF.
The SAVE program is the most affordable program if you only borrowed for undergrad. If you borrowed for graduate school, it will be the most affordable option for many (but not all).
But the SAVE Plan isn’t right for everyone, and it may not make sense based on your financial situation. You can use the Education Department’s loan simulator to help you find the right student loan repayment strategy.
You may also want to check out StudentLoanAdvice.com for additional repayment options. This site helps doctors, dentists, and high earners manage their student loan debt. You could potentially save hundreds to thousands of dollars with your custom student loan plan—the average client saves $191,000 on their student loans.
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