July 5, 2023

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Student Loans

Everything you need to know about the NEW Saving on a Valuable Education (SAVE) Plan

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‍What is the SAVE plan?

‍The SAVE (Saving on a Valuable Education) Plan is the newest IDR (income-driven repayment) plan.

Like the existing IDR plans, the payment calculation for the SAVE plan will be based on a borrower's income and family size, rather than outstanding balance(s) and interest rates.

The SAVE plan will provide a number of new benefits to borrowers including the lowest monthly payment of all the IDR plans *for most borrowers

This plan will also completely replace REPAYE.

‍What will my payments look like under the SAVE plan?

Under the SAVE plan, borrowers will pay between 5-10% of their discretionary income–depending on what type of loans they have (undergraduate or graduate loans.)

Borrowers with only undergraduate loans will pay 5% of their discretionary income

Borrowers with only graduate loans will pay 10% of their discretionary income

Borrowers with undergraduate AND graduate loans will pay a weighted average of between 5% and 10% of their income based upon the original principal balances of their loans.

How is discretionary income calculated under the SAVE Plan?

Discretionary income, under the SAVE plan is defined as the difference between your AGI (adjusted Gross Income) and 225% of the federal poverty line for your family size.

Wait, I have undergraduate and graduate loans? How do I figure out what percentage of my discretionary income I would pay on the SAVE plan?

The language is a little confusing so let’s walk through an example.

Let’s say your original principal balance for undergrad was $30,000 and your original principal balance for grad school was $70,000.

Your undergraduate debt accounts for 30% of your debt (30,000/100,000*100)

Your graduate debt accounts for 70% of your debt (70,000/100,000*100)

Once you know these percentages, here’s the formula:

(30% * 5%) + (70% * 10%) = 8.5% (is what percentage of your discretionary income you’d end up paying)

Don’t want to do the math? I made a little spreadsheet.

Can I get Loan Forgiveness with the SAVE plan?

Yes.

If your ORIGINAL loan balance was 12k, or less, you have get forgiveness after 10 years of payments
20 years for undergraduate loans
25 years for graduate loans

What are the benefits of the SAVE Plan?

The SAVE Plan includes multiple new benefits and changes. Some of these changes will go into effect this summer, some will go into effect in July 2024.

What benefits of the SAVE Plan will be implemented this summer?

The SAVE Plan will increase the income exemption from 150% to 225% of the federal poverty line.

This means that not only will most people have a lower payment on the SAVE plan, but even more borrowers will have a payment of $0. If you are a single borrower earning $32,800 or less, you will not have a payment.

Any unpaid interest will be eliminated after a payment is made on the SAVE plan. This will apply to both subsidized and unsubsidized loans.

This change will prevent negative amortization, which is a huge benefit. Here's an example of how it works:

Let's say you accrue $500 per month in interest. Your payment is $300 per month. Under the SAVE plan, you won't be charged for the additional, unpaid $200 in interest.

Married borrowers who file separately will be able to exclude their spouse's income.

This is unlike REPAYE, which does not allow borrowers to exclude spousal income regardless of filing status.

What benefits of the SAVE Plan will be implemented in July 2024?

If you only have undergraduate loans your payments will be cut from 10% to 5% of your discretionary income. If you have a mix of graduate + undergraduate loans you will pay a weighted average between 5-10% of your discretionary income.

If your ORIGINAL principal balance was 12k, or less, you can receive forgiveness after 10 years of payment.

Borrowers who consolidate will not lose progress toward forgiveness.

Borrowers will automatically receive credit toward forgiveness for certain periods

of deferment and forbearance as well as the option to make “catch-up” payments for periods that they don’t get credit for.

How Interest Works on the SAVE Plan (Saving on a Valuable Education)

Many borrowers are confused about how interest works on the SAVE plan--I can't tell you how many DMs I get saying "I'm on the SAVE plan but I'm still accruing interest what do I do?" To be clear, while the SAVE plan does offer a very generous interest benefit, it’s important to note that interest still accrues on the SAVE plan.

Here’s how it works:

On the SAVE Plan, interest accrues daily. However, if you're on the SAVE Plan,100% of the interest not covered by your monthly payment will be eliminated.

For example, let's say you accrue $500 per month in interest, but based on your income, your monthly payment is only $200. Instead of the $300 in interest being added to your outstanding balance, the government will cover the $300 in interest not covered by your monthly payment.

I’m Married, how will my spouse's income impact my payments?

If you are married and file separately your spouse’s income will not be included when calculating your monthly payments. Under REPAYE, which the SAVE plan is replacing, married borrower’s could not exclude spousal income, regardless of filing status.

**Filing separately to lower your student loan payments may not exceed the other benefits of filing jointly. It’s always best to consult with a tax professional before making changes to your filing status.

I’m already on a different IDR (Income-Driven Repayment Plan) Can I switch to the SAVE Plan?

Yes. However, if you’re currently enrolled in IBR and want to switch to a different repayment plan, any outstanding interest will be capitalized (added to your principal balance.)

If you’re thinking of changing from the IBR to the SAVE plan it may be best to pay off any outstanding interest before switching plans.

How do I Apply for the SAVE Plan?

If you’d like to enroll in the SAVE plan you have a couple of options:

You can enroll in REPAYE and you’ll be automatically enrolled into the SAVE plan once the plan is available.

You can apply for the SAVE plan directly later this summer (2023) The application for SAVE is not currently available.

NOTE: Any borrower who is already enrolled in REPAYE will be moved to the SAVE plan.

If you’re enrolled in IBR (Income Based Repayment) and want to enroll in SAVE and unpaid interest will be capitalized, as required by statute.