UPDATE (2/21/24): The Biden administration has announced its approval of $1.2 billion in student debt relief for 153,000 borrowers through a SAVE plan policy that forgives the student debt of borrowers who originally took out $12,000 or less in student loans. This policy was initially expected to begin in July, the White House said.
The U.S. Department of Education’s Federal Student Aid website has updated its income-driven repayment (IDR) application to give borrowers the option to enroll in the department's new Saving on a Valuable Education (SAVE) plan for student loan repayments.
This new plan, which the Biden administration is calling the “most affordable repayment plan yet," is becoming available at a time when many borrowers are looking ahead at their first student loan payments in years. Interest on student loans will resume accrual Sept. 1 and payments will be due starting in October.
An income-driven repayment (IDR) plan gives a person a monthly payment on their student loan debt based on their income and family size, the U.S. Department of Education says. After the borrower has made a certain number of payments, usually for 20 to 25 years, any remaining debt is forgiven.
Since the SAVE plan is new, student borrowers have plenty of questions about it, including how it affects interest on student loans, how it impacts monthly payment totals and when the changes in the new plan will take effect.
We VERIFIED several questions student borrowers may have as the SAVE plan becomes available.
THE SOURCES
WHAT WE FOUND
The SAVE plan is a revised version of the previous Revised Pay As You Earn Repayment Plan (REPAYE) IDR plan. According to the White House, SAVE is designed to reduce borrowers’ monthly payments by half, allow many borrowers to make $0 monthly payments, and ensure borrowers don’t see their balances grow from unpaid interest.
The Biden administration first began working on the SAVE plan through a rulemaking process in the fall and winter of 2021, the National Association of Student Financial Aid Administrators (NASFAA) says. The administration later announced the program in conjunction with Biden’s widespread one-time student debt forgiveness plan. The Supreme Court has since struck down the debt forgiveness plan, but SAVE has not faced the same legal challenges.
1. Can all student loans be repaid through SAVE?
Most student borrowers have loans that can be repaid through a SAVE plan, but there are some borrowers who do not have eligible loans, the National Consumer Law Center (NCLC) says. That’s because SAVE only covers federal direct loans.
These are the same loans currently covered by REPAYE plans, the Education Department says. So if you’re on a REPAYE plan, your loans will be eligible for SAVE and transferred over to the new plan.
However, private loans, Parent PLUS loans and other unconsolidated federal loans, such as FFEL loans, Stafford loans and Perkins loans, cannot be paid off with SAVE plans. The National Consumer Law Center says FFEL, Stafford and Perkins loans can be turned into direct consolidation loans, which could then be paid off with a SAVE plan.
The Education Department says borrowers who consolidate their loans will not lose progress toward forgiveness, starting in July 2024.
2. Will I have to apply if I’m already on an IDR plan?
Borrowers who sign up or are already signed up for a REPAYE plan will be automatically enrolled in SAVE, the White House says. But REPAYE is just one of four different IDR plans, and you’ll have to make the switch yourself if you’re on any of the other three plans, the Education Department says.
Anyone who isn’t on REPAYE or hasn’t already applied for REPAYE or SAVE will have to fill out an application on the Federal Student Aid website. If you’re switching repayment plans, it may take a few weeks for the change to take effect.
If you’re unsure what payment plan you have, you can check by logging onto StudentAid.gov and checking your My Aid page. Each loan listed on the page should have a repayment plan listed.
3. Is SAVE designed to be available for future student borrowers, too?
The SAVE plan is designed to be the go-to IDR plan for most student borrowers going forward.
The regulation which establishes SAVE is worded as revisions to the preexisting REPAYE plan, a plan that is available for new borrowers every year.
New student borrowers entering repayment will only have the option of enrolling in the standard 10-year repayment plan, the SAVE plan or another program called the Income-Based Repayment (IBR) plan, NASFAA says.
That will mean SAVE and IBR will be the only two IDR plans going forward. The Income-Contingent Repayment (ICR) plan and Pay As You Earn (PAYE) plan will be sunsetted as of July 1, 2024, NASFAA says. Once they’re sunsetted, only borrowers currently enrolled in those plans will be permitted to remain on them.
The IBR plan has a couple of differences from SAVE that might make it more appealing to certain borrowers. Unconsolidated Stafford loans and FFEL loans are eligible for IBR, and borrowers with graduate loans who are on IBR plans can have their loans forgiven after 20 years, the Education Department says. People with graduate loans have to make payments for 25 years before their loans are forgiven with SAVE.
4. Does the SAVE plan reduce monthly payments for every borrower?
SAVE offers lower monthly payments than other IDR plans, the NCLC says. But IDR plans do not offer the lowest monthly payment for every borrower, or save every borrower the most money long-term.
In an IDR plan, you’re generally billed a percentage of your discretionary income — that’s the difference between your income and an amount the Department of Education determines you need to meet your basic needs, the Education Department says. That amount is normally 150% of the federal poverty line, but it’s 225% of the federal poverty line for SAVE. In other words, SAVE’s formula lets participants keep more of their paycheck for non-loan expenses.
If your income is lower, an IDR plan requires you to pay less each month. And if your income is below that discretionary income threshold, you pay nothing. For example, a single person making $32,800 annually will not be required to make monthly payments on their student debt if they’re on the SAVE plan.
But because IDR plans like SAVE bill you based on your income instead of how much you owe, people with higher incomes are charged higher bills. These bills are sometimes higher than those for the standard repayment plan, which calculates your installments based on a 10-year repayment window.
Additionally, as long as you make your monthly payments on a SAVE plan, interest won’t be added to your loans. That could make SAVE more affordable over time if you’re unable to pay off your monthly interest otherwise.
Whether SAVE reduces how much you pay over the lifetime of your loan depends on how much you make, how big your loans are and the interest rate of those loans. You can speak with a financial advisor, a student borrower advocacy organization or use the Federal Student Aid loan repayment calculator to help you determine which repayment plan saves you the most money in the long run.
5. Will borrowers get the full benefits of SAVE upon enrolling?
Only some benefits offered by SAVE plans are available to borrowers right now. The remaining benefits will become available in July 2024.
According to the Education Department, SAVE currently:
- Increases the income exemption, which is the amount of income the Education Department uses to calculate discretionary income, from 150% the federal poverty line to 225% the federal poverty line
- Eliminates all remaining monthly interest on loans after a scheduled payment is made
- Excludes spousal income for borrowers who are married but file separately
In July 2024, SAVE will also:
- Cut undergraduate loan payments from 10% of discretionary income to 5% of discretionary income
- Forgive remaining balances for borrowers who originally borrowed $12,000 or less and have made 10 years of qualifying payments
- Borrowers who consolidate their loans will no longer lose progress towards forgiveness
- Automatically credit borrowers for certain periods of deferment and forbearance, allow “catch-up” payments to get credit for all other periods of deferment or forbearance.
- Automatically enroll borrowers in an IDR plan if they’re more than 75 days late on payment and have agreed to allow the Education Department to access their tax information
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