The SAVE Plan for Student Loans: How it Works

The Saving on a Valuable Education (SAVE) program was launched by the Biden administration in 2023 to help federal student loan borrowers save money on their loan payments. It offers updated repayment exemption rules, lower monthly payment amounts, and quicker forgiveness options.

As of February 2024, the program has canceled $1.2 billion in student debt for almost 153,000 borrowers enrolled in the SAVE plan.

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  • SAVE lowers monthly student loan payments to as low as $0 per month.
  • Undergraduate borrowers only need to pay 5% of their discretionary income per month. Graduate borrowers need to pay 10%.
  • SAVE offers loan forgiveness to borrowers with initial loan balances of $12,000 or less.
  • Not all federal loans qualify; parent loans and loans in default are not eligible.

. . .

What Is the Saving on a Valuable Education (SAVE) Plan?

The Saving on a Valuable Education program is an income-driven repayment (IDR) plan for federal student loans that helps lower payments for certain borrowers. It was launched in August 2023 in response to the Supreme Court shutting down President Biden’s student loan forgiveness plan.

The SAVE program replaces the old REPAYE income-driven repayment plan, helping lower the monthly student loan bill for millions of Americans. The monthly payment calculation lowers the payment amount to only 5% to 10% of discretionary income for borrowers. Spoke borrowers may even have their payments cut down to $0 based on their circumstances.

Payments are based on a borrower's income and family size and are available to any borrower with a Direct loan in good standing (i.e. caught up on payments).

Details of the SAVE plan

Lower monthly payments. The goal of the SAVE plan is to help lower your monthly payment if you need it. Previous plans required a minimum payment of 10% of your discretionary income for undergraduate loans. While the new SAVE plan only requires a minimum payment of 5%.

Interest is not capitalized. If your monthly payment doesn’t cover all of the interest on your loans, the interest is not added to your loan balance (but will accrue separately). Meaning, your student loan interest will not compound. This will help borrowers pay less in overall interest on their SAVE loan repayment plan.

More borrowers with $0 payments. The new income formula for the SAVE plan is based on 225% of the federal poverty level (FPL) compared to the 150% figure used by the old REPAYE plan. The Biden administration estimates over 1 million borrowers will now have their payments lowered to $0 per month.

Forgiveness becomes easier. Income-driven repayment plans offer forgiveness of remaining federal student loan debt. For undergraduate student loans, the remaining balances are forgiven after 20 years. While graduate student loans are forgiven after 25 years. With lower payments, more loans will be forgiven over time. (IDR forgiven loan balances are a taxable event).

How the SAVE Plan Works

SAVE plan replaces REPAYE, offering lower payments and flexible repayment for federal student loan borrowers, enhancing financial flexibility. While other plans are available, borrowers enrolled in an IDR plan will likely find the SAVE plan to be the best option.

Undergraduates pay 5%, and graduates pay 10% of discretionary income. SAVE plan tailors payments, providing flexibility for federal student loan borrowers.

With an adjusted gross income below 225% of the poverty line, borrowers may achieve a $0 monthly payment on the SAVE plan. In 2023, this means that borrowers with an AGI of $32,800 or less won’t have to make monthly payments toward their student loans on the SAVE plan. The number is adjusted based on family size as well. For example, a family with two adults and two kids with an AGI of $67,500 or less would also qualify for $0 monthly payments.

Federal student loan payments restarted in October 2023, but there is currently a grace period for borrowers until September 30, 2024. This means that borrowers who aren't able to make payments during this grace period won’t go into default on their loans, even those in IDR plans.

How To Enroll in the SAVE Plan

For borrowers who were enrolled in the REPAYE plan, their IDR plans will automatically switch to the SAVE plan. For borrowers who aren’t currently enrolled in the SAVE plan, they can do so through the IDR application on the Studentaid.gov website.

Who is eligible for the SAVE plan?

All eligible federal student loan borrowers in good standing can benefit from the income-driven SAVE plan, thereby enhancing their financial options.

Here’s a list of eligible student loan types:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

These federal student loans are eligible if consolidated into a Direct Consolidation loan:

  • Subsidized Federal Stafford Loans from the Federal Family Education Loan (FFEL) program
  • Unsubsidized Federal Stafford Loans from FFEL
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL Consolidation Loans
  • Federal Perkins Loans

These federal student loan types are NOT eligible for the SAVE program:

  • Direct PLUS Loans made to parents
  • Direct Consolidation Loans that repaid PLUS loans made to parents
  • FFEL Program Loans, while certain types can become eligible if consolidated, may have specific considerations.
  • Federal Perkins Loans (can become eligible if consolidated)
  • Any loan that is currently in default

Read more: Federal vs. Private Loans: What's the Difference?

SAVE vs. REPAYE

The SAVE program improves upon the REPAYE plan, and the SAVE program automatically enrolled all applicants who were on the REPAYE plan. Here’s how the programs compare:

(Old) REPAYE Plan(New) SAVE Plan
Minimum payment10% of discretionary income5% of discretionary income for undergraduate loans10% of discretionary income for graduate loans
Income exemption150% of the federal poverty line225% of the federal poverty line
Loan forgiveness20 years for undergraduate loans25 years for graduate loans As soon as 10 years (120 payments) for undergraduate loans with a starting balance of $12,000 or below.

Regular loan forgiveness at 20 years for undergraduate loans, 25 years for graduate loans
Unpaid interestCapitalized (added to the loan balance)Not capitalized

Pros and Cons of SAVE

While generally regarded as an improvement over the preceding REPAYE plan, the SAVE program has limitations. Here are some of the pros and cons of SAVE:

Pros

  • Lower monthly payments. Monthly payments may drop as low as $0 for some borrowers. Additionally, many will have their payments cut in half, according to the Biden administration.
  • High-income exemptions. The income exemption is now 225% of the federal poverty level, making it easier for borrowers to qualify for a $0 monthly payment through the SAVE program. Furthermore, this adjustment enhances accessibility for those in need of financial relief.
  • Forgiveness may happen sooner. Loan forgiveness is now as short as 10 years for borrowers with initial loan balances below $12,000. This represents a reduction in time by half compared to the previous IDR plan forgiveness options.
  • Interest doesn’t capitalize. Loans made to parents aren’t eligible for the SAVE program. Furthermore, loans in default cannot enroll in the SAVE program either.

Cons

  • Not all federal loans qualify. Loans made to parents aren’t eligible for the SAVE program. Additionally, loans in default cannot enroll in the SAVE program.
  • Loan forgiveness is taxable. Loan forgiveness is beneficial, but it counts as taxable income upon receipt, requiring careful planning for potential associated tax bills.
  • Not as generous for graduate students. The borrower's discretionary income dictates a minimum payment equivalent to 10% for graduate student loans. Moreover, this is the same as other IDR plans.

Read more: How to Consolidate Student Loans

Graduating students back side of graduation hats: Guide on the SAVE Plan for Student Loans: How it Works

FAQs

Does the SAVE plan forgive loans?

The new SAVE student loan program is an income-driven repayment plan that offers a lower monthly payment to some borrowers. Additionally, it provides a fast path for loan forgiveness. Borrowers with less than $12,000 in qualifying federal student loans can achieve forgiveness after 120 consecutive on-time payments. For every $1,000 borrowed over $12,000, you will need to make an additional 12 payments. Regular loan forgiveness is still available after 20 years for undergraduate loans, and 25 years for graduate loans.

Who qualifies for President Biden's SAVE plan?

Eligible federal student loan borrowers with specific loan types can enroll in the SAVE plan, thus offering lower payments and enhanced flexibility. For undergraduate loans, borrowers pay only 5% of their discretionary income, while for graduate loans, it's 10%. Depending on your income and family size, the SAVE program may reduce your monthly payment to as low as $0. Additionally, this can provide significant financial relief for eligible borrowers.

Is the SAVE repayment plan worth it?

Lower-income federal student loan borrowers, who are in need of financial relief, find the SAVE repayment plan worthwhile. Furthermore, this program provides them with significant benefits. Moreover, the SAVE plan “saves” borrowers thousands of dollars over their loan life through generous payments, uncapped interest, and faster forgiveness.

Read more: How to Refinance Student Loans

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.