The SAVE Plan: What Student Loan Borrowers Need to Know About the New Repayment Plan

By Nancy Bilyeau · January 19, 2024 · 8 minute read

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The SAVE Plan: What Student Loan Borrowers Need to Know About the New Repayment Plan

In the wake of the Supreme Court’s decision to block the White House program for federal student loan forgiveness, President Joe Biden announced the Saving on a Valuable Education (SAVE) program, a new income-driven plan for federal loan repayment. Monthly payments on loans will be lowered, based on discretionary income.

On Jan. 12, 2024, the White House announced that beginning in February, borrowers enrolled in SAVE who took out less than $12,000 in loans and have been in repayment for 10 years will get their remaining student debt canceled immediately.

Here’s what borrowers need to know about the SAVE Plan and who qualifies. As of January 2024, 6.9 million federal student loan borrowers were already enrolled in the plan.

Overview of the SAVE Plan

President Biden said he had created a new repayment plan, “so no one with an undergraduate loan has to pay more than 5 percent of their discretionary income.” It is part of his effort to make student loan debt more manageable especially for low-income borrowers, and it replaces the REPAYE program.

The SAVE Plan is the most affordable repayment plan for federal student loans yet, according to the Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments at all. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)

For federal borrowers who are required to make payments (this depends on your income and family size) and have only undergraduate school loans, the monthly payments will be cut in half — from 10% of discretionary income to 5%, beginning in the summer of 2024. How long people will have to make payments depends on the size of their loan balance.

•   If their original undergraduate loan balance is $12,000 or less, they will need to make payments for 10 years – and after that, any remaining balance will be forgiven.

•   If their original undergraduate loan balance is more than $12,000, their payment period is capped at 20 years (the term goes up one year for every $1,000 above $12,000) — and any remaining balance will be forgiven.

For federal borrowers who have both undergraduate and graduate loans, their monthly payments will be a weighted average of 5% and 10% of their discretionary income. How long they will need to make payments is pending government guidance.

And for federal borrowers who have graduate school loans, their monthly payments will be 10% of their discretionary income. Also, under the SAVE Plan, those who originally took out $12,000 or less in loans are eligible for forgiveness after at least 10 years of monthly payments.

Recommended: Discretionary Income and Student Loans, and Why It Matters

How to Enroll in the SAVE Plan

Borrowers who are already enrolled in the REPAYE program will be automatically enrolled in the SAVE Plan. During the transition, the DOE says it will use the two plan names, SAVE and REPAYE, interchangeably.

Those who are not currently in the REPAYE program can apply now, and they will be switched to SAVE automatically.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

How SAVE Is Better Than REPAYE

The SAVE Plan replaces the Revised Pay As You Earn Repayment Plan (REPAYE). It is an improvement on it in several ways:

•   The SAVE Plan allows for low-income borrowers to make no payments at all.

•   The SAVE Plan requires low-balance borrowers ($12,000 or less) to make payments for only 10 years.

•   The SAVE Plan requires borrowers with only undergraduate debt to pay 5% (instead of 10%) of their discretionary income.

Additionally, if the required payment based on your income does not cover all of the interest that accrues every month, the uncovered amount will not be added to your balance. In other words, your balance will not grow if you are making your payments.

Recommended: Supreme Court Blocks Student Loan Forgiveness, Biden Vows More Action

Who Will Owe $0 in Monthly Federal Loan Payments Under SAVE?

Whether you will owe monthly federal loan payments under the SAVE Plan depends on two factors: your income* and your family size. Your payment will be zero if your income is at or under 225% of the Federal Poverty Level (FPL)**.

To find out if you will be one of the estimated million borrowers who still won’t have monthly payments to make after the federal payment pause ends, look up your family size in the table below. If your income* is equal to or below the corresponding “2023 Income Level Protected From Payment Under SAVE,”** your monthly federal student loan payment will be $0.

*Normally, the government uses adjusted gross income figures, but the DOE did not specify this in its factsheet .

**Usually the government uses the prior year’s FPL and your prior year’s income, but the DOE used 2023 figures in its factsheet.

 

2023 Income Levels Protected From Payment Under SAVE by Family Size
Family Size 2023 Incomes at Federal Poverty Level (FPL) 2023 Income Level Protected From Payment Under SAVE (FPL x 225%)
For individuals $14,580 $32,805
For a family of 2 $19,720 $44,370
For a family of 3 $24,860 $55,935
For a family of 4 $30,000 $67,500
For a family of 5 $35,140 $79,065
For a family of 6 $40,280 $90,630
For a family of 7 $45,420 $92,195
For a family of 8 $50,560 $113,760
For a family of 9+ Add $5,140 for each extra person $125,325+



💡 Quick Tip: If you have student loans with variable rates, you may want to consider refinancing to lock in a fixed rate before rates rise. But if you’re willing to take a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider a variable rate.

 

How Much Your Monthly Federal Loan Payments Could Be Under SAVE

To calculate how much your monthly federal payments could be starting in October 2023 under SAVE, look up your family size in the table above and see the corresponding protected income level**. Subtract that dollar amount from your estimated 2023 income* and multiply it by 10%. Then take that figure and divide it by 12 to get your monthly payment amount.

(2023 Income* – 2023 Protected Income Level**) x 10% ÷ 12 = Monthly Federal Loan Payment Under SAVE

*Normally, the government uses adjusted gross income figures, but the DOE did not specify this in its factsheet.

**Usually the government uses the prior year’s FPL and your prior year’s income, but the DOE used 2023 figures in its factsheet.

When Will the SAVE Plan Take Effect?

The SAVE Plan will replace REPAYE by the time payments were due in October 2023. Originally, the full impact of SAVE was supposed to happen in July 2024, but President Biden announced in January that starting in February, borrowers enrolled in SAVE who took out less than $12,000 in loans and have been in repayment for 10 years will get their remaining student debt canceled immediately.

The other elements of SAVE are not expected to take effect until July 1, 2024. This means that borrowers who are eligible to have their payments cut to 5% of their discretionary income won’t see the reduction until this summer.

But the DOE is increasing the amount of income that is protected from payments, so that single borrowers who make up to $32,800 will not have to make payments and borrowers in a family of four making less than $67,500 also won’t have payments due.

Also, starting in October 2023, an important change was made in the amount of interest paid through SAVE. If you make your full monthly payment, but it is not enough to cover the accrued monthly interest, the government covers the rest of the interest that accrued that month. This means that the SAVE Plan prevents your balance from growing due to unpaid interest.

Who Is Eligible for the SAVE Plan?

The SAVE Plan is available to federal student borrowers with Direct student loans. This includes:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct PLUS Loans made to graduate or professional students

•   Direct Consolidation Loans that did not repay any PLUS loans made to parents

Additionally, you are eligible for the SAVE Plan if you consolidated a loan from the Federal Family Education Loan (FFEL) Program, including Subsidized and Unsubsidized Federal Stafford Loans, FFEL Plus Loans for graduate or professional study, FFEL Consolidated Loans that did not repay parents’ PLUS loans, and Federal Perkins Loans.

The SAVE Plan is not available for private student loans or Parent PLUS loans. Also, borrowers must be in good standing with their student loan payments. Borrowers in default who provide income information that shows they would have had a $0 payment at the time of default will be automatically moved to good standing, allowing them to access the SAVE plan.

Other Programs

In addition to the SAVE program, President Biden announced that the DOE is instituting a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

Moreover, the Public Service Loan Forgiveness Program exists to help professionals working in public service who are struggling to repay federal student loans.

The Takeaway

Though the new SAVE Plan for federal student loan borrowers won’t take full effect until July 2024, some benefits will be implemented by February. Namely, the SAVE Plan will give borrowers who originally borrowed $12,000 or less forgiveness after as few as 10 years. Also, low-income borrowers may be exempt from making payments, while loan balances will not grow for borrowers making payments even if their required payment amount doesn’t cover all of the interest that accrues every month.

In July 2024, eligible federal borrowers with only undergraduate debt will see their monthly payments cut at least in half.

This article will be updated as the DOE releases more information about SAVE. To find more details yourself, this StudentAid page is a good place to start.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


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