After a three-year pause, federal student loan payments have resumed. Whether you’re making payments for the first time or just getting back into the swing of things, you’ll probably need to prepare your budget. The new Saving on a Valuable Education (SAVE) Plan is the latest IDR plan available from the US Department of Education. If you enroll, your income and family size will determine your monthly payment. Let’s unpack how it all works.
Note: If your loans are in default, you may qualify for the Fresh Start initiative to easily get your loans back in good standing. Visit StudentAid.gov for details.
What is the SAVE repayment plan?
SAVE has replaced Revised Pay As You Earn (REPAYE), a different IDR plan—and it brought some big changes. Let’s say you’re a single borrower with no dependents and your annual income is $38,000. According to the US Department of Education, you would have paid $134 per month under the REPAYE plan. With the SAVE repayment plan, your new monthly payment would be just $43.
SAVE is widely considered the most flexible repayment plan for federal student loans. Here’s what sets it apart from other federal repayment plans:
- Many borrowers will have lower monthly payments. Monthly payments are based on your discretionary income and family size. Before SAVE took effect, the amount of income that was sheltered from payments was equal to 150% of the federal poverty guideline. This number is now jumping to 225%. This means that a single borrower who earns under $32,805 per year won’t have to make payments at all. This also applies to families of four who earn less than $67,500 per year. Visit StudentAid.gov to estimate your monthly payment under this plan.
- You won’t be charged for the interest that’s not covered by your new monthly payment amount. If you make your monthly payment, the remaining unpaid interest is covered by the government. Let’s say you have a $30 monthly payment and $50 in interest adds up every month. That $20 difference will be dropped instead of being added to your balance. In other words, your loan amount won’t increase due to unpaid interest.
- If you’re married and file your taxes separately, you can exclude your spouse’s income. This means your monthly payment amount will be based on your income only. It also means that your spouse won’t have to cosign your application for an IDR plan.
More changes are coming in July 2024. These include:
- Payments on undergraduate loans will be cut in half. Borrowers with both undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income based on the original principal balances of their loans.
- If your original principal balance is $12,000 or less, your remaining balance will be forgiven after making payments for 10 years. With other IDR plans, you’d have to make payments for a minimum of 20 or 25 years.
- If you consolidate your federal loans, you won’t lose your progress toward forgiveness.
Which loans are eligible for SAVE?
The following federal student loans are eligible for the SAVE Plan:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that did not include parent PLUS loans
If you had loans from the Federal Family Education Loan Program, which is no longer active, you’ll have to consolidate those with a Direct Consolidation Loan first. Unfortunately, parent PLUS loans are ineligible for SAVE.
What are the benefits of enrolling in SAVE?
There are a number of benefits associated with the SAVE repayment plan. These include:
- Potentially lower payments
- Unpaid interest doesn't accrue if you make your monthly payments
- Shorter loan forgiveness timeline for some borrowers
- Automatic income recertification
Since unpaid interest doesn't accrue, you also avoid it capitalizing when you exit SAVE (or any IDR plan except for the Income-Based Repayment Plan).
How do I apply for SAVE?
You can apply for the SAVE Plan online. When applying for an IDR plan, you can request that your loan servicer put you on whichever plan has the lowest monthly payment, which will likely be SAVE. If you were previously enrolled in the REPAYE Plan, you’ll automatically get the new SAVE benefits.
The return of federal student loan payments might put a strain on your budget. If so, the SAVE Plan could provide some much-needed relief.