President Biden's broad student loan forgiveness plan didn't make it past the Supreme Court. But so far, the new Saving on a Valuable Education program (SAVE), a new income-driven repayment plan, is moving ahead to help some borrowers pay off their student loans, pending legal action.
Here's what the SAVE program for repaying student loans is—and what it isn't.
What is the SAVE plan?
The SAVE plan is an income-driven repayment plan for borrowers with federal student loans. Just like the other 3 federal income-driven repayment plans, the monthly payments are determined by the borrower's income and family size.
Generally, the lower someone's income and higher their family size, the less they would have to pay on this plan. In fact, some borrowers are entitled to $0 monthly payments if they meet certain income and family size thresholds. The higher someone's income and lower their family size, though, the more they would have to pay on this plan. That means it might not be the best plan for every borrower.
The SAVE student loan program is taking the place of the Revised Pay as You Earn (REPAYE) plan. Neither plan is the same as the one-time broad student loan forgiveness plan that would have forgiven up to $20,000 in federal student loans for qualified borrowers because the Supreme Court struck that down. Still, some borrowers on the SAVE plan will have a chance at reaching forgiveness.
How much would my payments be on the SAVE plan?
The monthly payment is determined by your discretionary income, or the difference between your adjusted gross income (AGI) and 225% of the US Department of Health and Human Services Poverty Guidelines for your family size. So if you live in one of the 48 contiguous states and earn below 225% of the poverty guideline for your family size—$32,805 for a single borrower, or roughly $15 an hour, or $67,500 for a family of 4—your monthly payments are $0. If your income rises above those thresholds in the future and your family size stays the same, you would owe a monthly payment. That's because your monthly payment gets recalculated each year.1
For October 2023 through June 2024, everyone on the SAVE plan earning more than the above owe monthly payments of 10% of their discretionary income.2
When the SAVE plan is in full effect in July 2024, borrowers with undergraduate loans will see their payments halved, to 5% of their income above 225% of the poverty line. Those with only graduate loans will continue monthly payments of 10% of their discretionary income. It's more complicated for those with both undergrad and graduate loans. They'll pay a weighted average between 5% and 10% of their discretionary income, with the original principal balances of their loans factored in.3
Does the SAVE plan provide student loan forgiveness?
Starting in July 2024, borrowers who started out with principal balances of $12,000 or less can have their remaining balance forgiven after 10 years of qualifying payments.4
What about borrowers who took out more in loans? For every extra $1,000 they borrowed, they have to make another year of qualifying payments before they reach forgiveness, with a max of 20 years of qualifying payments for undergraduate loans and 25 years for graduate loans.5 For example, if you took out $16,000, you might be eligible to have your balance canceled after 14 years of qualifying payments. If you took out $40,000 in undergraduate loans, you might be eligible to have your balance forgiven after 20 years of qualifying payments.
Qualifying payments you made before this plan could count toward your total required years of payments. If you consolidated multiple loans together, you'd receive credit for qualifying payments made pre-consolidation based on a weighted average of the loans' principal balances.
SAVE plan vs. REPAYE plan: How are they different?
There are several differences between the SAVE plan and REPAYE plan.
- Discretionary income max: REPAYE monthly payments were 10% of discretionary income for all loans, compared to the upcoming 5% for undergraduate loans on the SAVE plan.
- Forgiveness threshold: The minimum number of years for anyone on the REPAYE plan to hit forgiveness was 20 years, and 25 years for graduate loans. With SAVE, those with low starting balances might be eligible to have their loans canceled after 10 years of payments.
- Interest's effect on payments: Under the SAVE plan, interest that a borrower's monthly payment doesn't cover won't increase the loan balance. So if your monthly payment is set at $150, but your loan would accrue more than $150 worth of interest, your balance won't rise despite the fact that you're not paying this extra interest.
- Income thresholds: The amount of income that doesn't factor into your monthly payment calculation jumped with SAVE, from 150% of the federal poverty guidelines under REPAYE to 225%. Monthly payment calculations won't factor in a spouse's income for borrowers who are married filing taxes separately. Spouses won't count toward family size for calculating payments either.6
Who's eligible for the SAVE plan?
Any former student with federal loans, regardless of income, may enroll in the SAVE plan, even if they've previously consolidated their federal loans. If someone has only private loans, they can't enroll in the SAVE plan. If you were already enrolled in the REPAYE plan, you would be automatically enrolled in the SAVE plan by October.
Potential disadvantages of the SAVE plan
Enrolling in the SAVE plan could extend your repayment timeframe. While most repayment plans wrap up in about 10 years, SAVE could take 20 years for many undergraduate borrowers—and 25 years for those with graduate loans. A graduate student who finishes school at age 26 could still be paying student loans until they're 51.
Also, even though loan balances don't increase if your monthly payment is less than the amount of interest your loan accrues, your loan balance might not decrease either. For example, if you took out $37,000 in loans, you could be paying $100 a month for 20 years (or $24,000) and not see your loan balance drop much, if at all. This could feel demotivating for some.
If you qualify for forgiveness in 2026 or later, you might be on the hook for paying taxes on the canceled debt. Taxpayers get a pass on paying federal taxes on forgiveness through 2025, though not necessarily state taxes, but then it's up in the air. At that point, it's possible that the canceled portion of your loan could be taxable at the federal and state level. Keep this in mind and consult with a tax professional before enrolling in the SAVE program—or any student loan repayment plan that offers forgiveness.
And it's possible other existing repayment plans could disappear if few people stay enrolled in them, now that SAVE has become an option. Those other plans might benefit you more than SAVE would.
There's always the possibility that SAVE and other existing repayment plans could undergo more changes in the future.
Is the SAVE plan the best repayment option for me?
It depends. Lower-income borrowers and those who took out a small amount of only undergraduate loans might have the lowest monthly payments and the quickest path to possible forgiveness. Other groups will have higher monthly payments and need to make more years of payments to potentially be eligible to have their balances canceled.
No matter your circumstances, it's a good idea to use a student loan calculator to determine which plan could save you the most money, in the near and long term. Consider whether you want to prioritize lower monthly payments, which could be important if you're tight on cash now, or less money spent overall, if there's room in your budget for higher monthly payments now. Higher monthly payments could mean less total money spent on loans, depending on the plan details.
How to apply for the SAVE plan
Borrowers who were enrolled in the REPAYE plan will be automatically moved to the SAVE plan by the time federal student loan payments resume in October. If that's you, you don't need to take any action. If you were in any other repayment plan, income-driven or otherwise, you would need to apply to enroll in the SAVE plan. Before you do, get more info about the SAVE repayment plan. If you'd like to apply, visit Studentaid.gov/IDR.