Saving on a Valuable Education (SAVE), Explained

In the wake of the Supreme Court decision against the Biden administration’s student loan cancellation plan, a new Income-Driven Repayment (IDR) plan called Saving on a Valuable Education (SAVE) was introduced.  The plan, which replaces Revised Pay As You Earn (REPAYE), has several important distinctions from its predecessor plan, and is likely the best option for the majority of federal student loan borrowers going forward.

Read on to learn more about the nuances and benefits of SAVE and why it might be the right choice for you.

REPAYE vs. SAVE

Several borrower-friendly changes have been made in the transition from REPAYE to SAVE. Most importantly, monthly payments will be the lowest of all the IDR plans, as SAVE changes the discretionary income calculation and halves the payment terms for undergraduate loans (and provides a weighted average for those with undergrad and graduate debt). SAVE also offers a shorter forgiveness period for borrowers with lower original balances (less than $22,000).

Among other changes, there will no longer be a penalty for married borrowers and interest that exceeds payment terms will be waived. Some changes are already in place, while others will go into effect in 2024.

Comparing REPAYE and SAVE

If you’re currently enrolled in REPAYE

If you are already enrolled in the REPAYE plan or signed up before SAVE was an available choice, you don’t have to take any action. You will automatically be put on the SAVE plan when it becomes active.

Why should you choose SAVE?

SAVE may be the best plan for many borrowers, both new and existing. It’s an especially ideal plan for borrowers with lower original balances, as it offers a much quicker route to forgiveness. Under SAVE, borrowers with an original balance of less than $12,000 will get a 10-year term, and for amounts above $12,000, it’s an additional year per $1,000. So, a borrower with a $14,000 original loan balance could potentially receive forgiveness in 12 years instead of 20 or 25 offered by other IDR plans.

As such, it is likely the best plan for community college graduates and low- to middle-income borrowers. But even for higher-balance debt amounts, SAVE offers the lowest monthly payments — meaning that high-income borrowers would have less to worry about each month, and that ultimately, more of the loan balance would be forgiven. Those enrolled in SAVE who are working in the public sector may also be eligible for Public Service Loan Forgiveness.¹

What is your monthly payment under SAVE?

The SAVE plan offers a drastic change in how the monthly payment is calculated compared to the former version of REPAYE as well as other IDR plans currently available. Like other plans, your payment is based on your income and family size. But instead of 10% of your discretionary income, under SAVE, your payment is calculated at only 5% (for undergraduate loans) when the plan takes full effect next year.

For graduate loans, the payment is calculated at 10% — and for those with both undergraduate and graduate loans, the program uses a weighted average between 5% and 10% based on the original principal balances.

How discretionary income is calculated

Discretionary income is calculated differently for different IDR plans, and for SAVE, again, it is distinct from the other plans. Instead of defining it as the difference between your adjusted gross income (AGI) and 100% or 150% of the poverty guideline for your location and family size, it uses 225% of the poverty guideline. (Note that poverty guidelines are maintained by US Department of Health and Human Services at aspe.hhs.gov/poverty-guidelines.)

According to the Federal Aid site, this means that the SAVE plan may offer single borrowers making $32,800 a year or less (roughly $15 per hour) – or a family of four earning $67,500 or less – a monthly payment of $0. So, you don’t have to go into default or forbearance if you cannot afford loan payments – your monthly payment will be zero, but will still count as a payment.

If you are making more than this threshold, SAVE can likely save you at least $1,000 a year compared with the other IDR plans.

Interest payments

The SAVE plan also improves how interest is factored into payments by eliminating all of the remaining interest when scheduled payments are made on time. This means if your monthly payment is lower than the accumulated interest you would normally have to pay, the remainder won’t be capitalized or added to your balance when you make your regular payment.

Estimated monthly payment under the SAVE plan

Savings Case Study

For a borrower with undergraduate loans, a household income of $75,000, and a family of 4 in the contiguous 48 US states:

• The poverty guideline for this area and family size is $30,000.
• All IDR plans calculate a borrower’s discretionary income as the difference between annual income and a percentage (formerly 150% under REPAYE) of the poverty guideline (in this case, 150% of $30,000 is $45,0000, leaving $30,000 as their discretionary income).
• SAVE shelters an additional percentage of that income over REPAYE and other IDR plans (effective immediately), so that the calculation is made between annual income and 225% of the poverty guideline.
• For this borrower and their family of 4, that means their discretionary income calculation will change from $30,000 to $7,500. Their 10% monthly payments will take that reduced amount into account going forward, so that each payment will drop from $250 to $62.50.
• Additionally, as of July 2024, each payment will be halved to 5%. This means the monthly payment will be reduced further, to just $31.25.
• This family will save over $2,000 a year under the SAVE plan.

Changes going into effect in 2024

Some elements of the SAVE plan will not go into effect until next year (currently scheduled for July 2024). These include the halved payment amount for undergraduate loans (from 10% to 5% of discretionary income) and the loan forgiveness available to low-balance borrowers after 10 years of payments. Other changes are as follows:

• The principal balance threshold for borrowers seeking early forgiveness is not an all-or-nothing cutoff. A principal balance of $12,000 will make you eligible for forgiveness of the remaining balance after 10 years of payments, as discussed. But the program will also offer a maximum repayment period before forgiveness for slightly higher loan balances, increasing by one year for every additional $1,000 in the principal. For example, if your original balance is $13,000, you will be eligible for forgiveness after 11 years. For $14,000, 12 years, and so on.
• Payments made before 2024 will count toward these maximum forgiveness timelines.
• If you consolidate your loans, you will not lose any progress already made toward forgiveness. Instead, you’ll get credit based on a weighted average of payments made and the principal balances of the consolidated loans.
• You can automatically receive credit toward forgiveness for periods of deferment and forbearance, and will have an option to make “catch-up” payments to earn credit for periods that don’t qualify as automatic.

These elements of the SAVE plan are clearly intended to expand forgiveness and make it more accessible to more borrowers. Note that although the 5% payment will come into practice next summer, the amount of income protected from payments in the discretionary income calculation (from 150% to 225%) will be in immediate effect.

Eligibility

Generally, student borrowers with any Direct Loan in good standing are eligible. When it comes to specific loan types and their eligibility, the exception is Parent PLUS loans, which remain only available for one IDR plan—Income-Contingent Repayment.

How to apply for SAVE

The government has a beta site available specifically for SAVE applications at StudentAid.gov/IDR. If you applied recently for REPAYE, you will automatically be put on the SAVE plan. You can also request with your loan servicer that you be placed on the lowest monthly payment plan (which will likely be SAVE). Remember that if you have more than one loan servicer you must submit separate requests to each one.

If you are already on an IDR plan but not sure which one, log in to StudentAid.gov and go to the My Aid page to view your loans. Each loan will be associated with a repayment plan. Note that REPAYE and SAVE may be used interchangeably in the language on the federal site until the transition is complete.

How does being married impact SAVE vs REPAYE?

The IDR plan you choose can make a big difference for married borrowers. Formerly, under REPAYE, there was no option for married borrowers (whether or not they filed taxes separately or jointly) to elect for only their individual incomes to be considered in their calculations for monthly payments. This meant that if a borrower with loans was married to someone without loans, they were essentially penalized with a much higher monthly payment as both incomes were used in the calculations. This changes under SAVE: married borrowers who file their taxes separately will not be required to include their spouse’s income in their payment calculation.

Do your research

As you learn more about SAVE and whether it might be the best choice for your student loan circumstances, continue to consult the federal student aid website for updates. You can also read our other guides in this series for information on the other three current plans: IBR, ICR, and PAYE. Set up a consultation with our student loan specialists to help you understand the details behind SAVE and assist you with choosing the plan that can help you manage your debt and get closer to forgiveness.