Saving on a Valuable Education (SAVE) Plan: What to Know

The Saving on a Valuable Education (SAVE) Plan is an income-driven repayment (IDR) plan for student loan borrowers. The plan sets monthly payments at 5% to 10% of discretionary income and provides forgiveness for loan balances after 20 or 25 years. Under a new formula for calculating discretionary income, an estimated 1 million low-income borrowers would qualify for a $0 monthly student loan payment.

Here are more details about how this plan works.

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

The Biden administration introduced the Saving on a Valuable Education (SAVE) plan in August 2023. The income-driven repayment plan replaces the Revised Pay As You Earn (REPAYE) plan. REPAYE borrowers are automatically enrolled in the SAVE Plan without needing to take any action, while borrowers enrolled in other payment plans can switch at the Federal Student Aid website or by contacting their student loan service provider.

Like other IDR plans, SAVE calculates payments based on a borrower’s income and family size. This new plan has the lowest monthly payment requirement of any IDR plan and is available to anyone with a direct loan in good standing.

Features of the SAVE Plan include:

• Lower monthly student loan payments. If you hold student loan debt for undergraduate loans, your payment is cut from 10% of discretionary income to 5%. If you hold both undergrad and graduate student loans, your monthly payment will average between 5% to 10% of discretionary income.
• A new discretionary income formula. This new formula is based on 225% of the federal poverty level (FPL), up from 150% previously. This means a single borrower earning $32,800 or less annually (or $67,500 for a family of four) will have a $0 monthly student loan payment. The Biden administration estimates this applies to one million low-income student loan borrowers.
• No capitalization of unpaid interest. If your student loan payment is insufficient to cover your monthly interest charge, the unpaid interest is not added to your student loan balance under the SAVE plan. This means that the loan amount won’t grow due to capitalized interest.

How the SAVE Plan Works

Because SAVE is similar to other IDR plans, you don’t have to take too many additional steps to sign up. Once enrolled, your payments could be cut in half (compared to other IDR plans), and in some cases, you might not need to make any payments at all. Whereas other IDR plans require payments of 10% to 20% of discretionary income, under SAVE this is set a 5% for undergraduate loans. If you have graduate loans, the monthly payment is up to 10% of discretionary income, or the weighted average of your student loan balances.

There’s an extended grace period from October 1, 2023, to September 30, 2024, which ensures that borrowers who miss payments won’t see any damage to their credit scores or loan status. So you won’t have to worry about defaulting on your student loan debt during this time.

The White House estimates the typical four-year public university borrower will save nearly $2,000 a year with the SAVE Plan, and 85% of community college borrowers are expected to be debt-free within 10 years.

SAVE vs. REPAYE

Because SAVE is replacing the REPAYE plan, it’s important to look at the differences between the two and how each would impact your student debt repayment:

Source: U.S. Department of Education and Federal Student Aid

Advantages and Disadvantages of the SAVE Plan

Advantages

• Payments are potentially as low as $0. While all IDR plans require you to pay a percentage of your discretionary income, the SAVE Plan would allow you to earn more and pay less toward your loans. You can earn up to $32,800 (or up to $67,500 for a family of four) without paying anything toward your loans on the SAVE Plan.
• Capitalized interest is gone. As long as you make your required monthly payment, your balance won’t grow due to unpaid interest. This would make it easier to pay off your loans sooner.
• No more spousal signature. The new plan lacks the requirement that a spouse needs to co-sign your IDR application.

Disadvantages

• It’s not student loan forgiveness. You’re still required to make payments on your loans, and this repayment option doesn’t forgive your loans right away like President Biden’s original plan would have.
• It takes full effect in 2024. While some borrowers might get automatically enrolled as REPAYE gets phased out, some features won’t be available until 2024. This includes forgiveness for borrowers who make 10 years of repayments on loan balances of $12,000 or less. Payments made prior to 2024 still count toward the forgiveness time frame.

The Bottom Line

Even though the Supreme Court struck down President Biden’s student loan forgiveness plan, the new IDR plan—SAVE—is clearly the administration’s backup plan.

SAVE adjusts what borrowers will need to repay based on how much they earn. Instead of paying over 10% of your discretionary income toward your student loans, you could pay anywhere from 5% to 10%. Your monthly payments could be cut in half, which would help you save money for other expenses in the long run. While it’s not complete forgiveness, borrowers on the SAVE Plan can expect forgiveness in as little as 10 years, depending on how much they owe.