What You Should Know About the SAVE Program
Struggling to make student loan payments can be a huge source of stress. Some borrowers could see that stress—and potentially the amount they have to pay every month—drop to zero with the Saving on a Valuable Education (SAVE) Plan.
The SAVE Plan lets qualifying borrowers potentially lower their student loan payments and reduces the amount of time required to get their loans forgiven. However, the SAVE Plan may not be the best option if you have a high income or want your loans paid off as soon as possible. By knowing how the SAVE Plan works, its eligibility requirements, and its benefits and drawbacks, you can decide whether this choice is right for you.
What is the SAVE Plan?
The SAVE Plan is an income-driven repayment plan introduced in 2023. It sets payments for borrowers based on their discretionary income and family size, keeps loan balances from growing due to unpaid interest, and provides early loan forgiveness based on how much you originally borrowed.
Who Qualifies for the SAVE Plan?
The SAVE Plan replaces the Revised Pay As You Earn (REPAYE) Plan. If you were enrolled in the REPAYE Plan, you're automatically enrolled in the SAVE Plan.
Other borrowers with certain federal student loans are eligible for the SAVE Plan. These loans include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans taken out as a graduate or professional student
- Direct Consolidation Loans that didn’t include PLUS loans made to your parents.
- Federal Perkins Loans are only eligible for the SAVE Plan if they’re consolidated using a Direct Consolidation Loan. Make sure you’re aware of the pros and cons of debt consolidation in general before choosing this option.
Other loans aren't eligible for the SAVE Plan, such as:
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Federal Family Education Loans (FEEL) PLUS Loans for graduate and professional students
- FEEL Consolidation Loans
- Private loans
- Direct PLUS Loans made to your parents
- Direct Consolidation Loans that repaid PLUS loans made to your parents
- Any loans currently in default are not eligible for the plan.
You can see the specifics and enroll in the SAVE plan on the Federal Student Aid website.
You can switch between other income-based repayment plans offered by the government within some limits. Beginning July 1st, 2024, people on the SAVE Plan who were previously on the Pay As You Earn (PAYE) Plan or Income-Contingent Repayment Plan can't switch back. Once you've made 60 payments on the SAVE Plan, you won't be able to enroll in the Income-Based Repayment Plan.
Otherwise, loans enrolled in the SAVE Plan remain in the program until they're forgiven or paid off, whichever comes first.
What are the SAVE Plan’s benefits?
Like other income-driven repayment plans, the SAVE Plan calculates your monthly payments based on your discretionary income and family size. That means low-income borrowers could see their payments decrease or drop all the way to zero.
The SAVE Plan currently defines discretionary income as how much more money you make than 150 percent of the federal poverty guideline for your family size. In July 2024, that amount becomes 225 percent of the poverty guideline.
Before July 2024, The SAVE Plan caps your loan payments at ten percent of your annual discretionary income. Starting in July, this amount decreases to five percent for undergraduate loans while remaining at ten percent for graduate loans.
Let’s say you’re a single person making $40,000 per year in July 2024. The poverty guideline for a one-person family is $15,060. That means your discretionary income would be $6,115 (10 percent of $40,000 - $15,060). Your monthly payments would be capped at $25.48 for a yearly total of $305.75.
Your monthly payments may be lower than the amount of interest your loans accrue each month. However, this interest won’t be added to your balance if you make your monthly payments. Your payments won’t decrease your balance either, though.
For example, say you had a $10,000 loan at 5.5 percent interest with a 10-year term. Your monthly payment is $108.53, with $45.83 going to interest and $62.69 to the principal for the first month. You’re a single person with a $40,000 annual income, so your payments are capped at $25.48 using the SAVE Plan. The entirety of your payment is going towards the interest your loans generate. While the remaining $20.35 in interest isn’t getting added to your loan’s balance, you’re also not paying down any of the principal. Your loan balance would remain at $10,000.
How Does Loan Forgiveness Work for the SAVE Plan?
Most income-driven repayment plans offer forgiveness for borrowers who make between 20 to 25 years of on-time payments on their loans. The SAVE Plan cuts this amount of time down to ten years in some cases.
Borrowers who took out $12,000 or less in undergraduate loans can have their loans forgiven after making 120 payments over ten years. The number of payments required for forgiveness goes up by a year for each additional $1,000 originally borrowed, with a maximum of 20 years for undergraduate loans and 25 years for graduate loans. If you originally had a balance of $20,000, you would need to make 18 years of payments before your loans are forgiven.
Who Shouldn’t Use the SAVE Plan?
The SAVE Plan may not be right for everyone.
Income-driven repayment plans aren’t good options for high earners. Your monthly payments are calculated based on how much money you make per year. If that’s significantly higher than 225 percent of the federal poverty guidelines, your monthly payment could be greater than it would be under a traditional repayment plan.
You shouldn’t use the SAVE Plan if your goal is to pay off your student loans as fast as possible. Most student loans have ten-year repayment terms. If you originally borrowed over $12,000, you’re going to be paying your loans for more than ten years.
Know if the SAVE Plan is Right for You
The SAVE Plan could make a huge impact for certain borrowers. Depending on your income, you could lower your monthly student loan payments, keep your balance from increasing due to unpaid interest, and eventually receive loan forgiveness. Higher-income borrowers or those looking to pay down their loans as fast as possible should consider other options. By understanding how the SAVE Plan works and whether it meets your specific financial goals, you can make the best choice.
If you want to learn more or apply for the SAVE Plan, visit the page for income-driven repayment plans on studentaid.gov. You'll fill out an application that asks you to verify your employment status, income, marital status, and the kinds of student loans you're looking to enroll in.
