Although the Supreme Court officially rejected President Biden's student loan forgiveness plan, there are other relief measures in the works, designed to make student loan repayment easier for millions of Americans.
The SAVE plan is by far the most important of these efforts, as it could save the average student loan borrower thousands of dollars per year. In many cases, it will require no monthly student loan payments whatsoever. In this article, we'll discuss the details of the SAVE plan and how you can take advantage before federal student loan payments restart later this year.
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What is the SAVE plan?
The Savings on a Valuable Education, or SAVE plan, is a new income-driven repayment plan available to federal student loan borrowers, and it will be in place before federal student loan repayment starts again later this year.
The highlights of the SAVE plan are:
- Required monthly payments will be capped at just 5% of the borrower's discretionary income for undergraduate loans, and 10% for graduate loans. Current plans use the 10% figure for all loans.
- The SAVE plan increases the definition of discretionary income to 225% of the federal poverty level, up from 150% under the existing income-driven plans. The combination of these first two provisions is expected to save the average borrower at least $1,000 per year and are likely to reduce the required payment to $0 for more than 1 million additional borrowers.
- If the borrower's required payment doesn't cover the interest that accumulates on the loans, the unpaid interest isn't added to the loan balance. Under existing plans, required payments can be low or even $0, but any unpaid interest can make the loan balance grow over time.
- Any remaining balance is forgiven after 20 years of payments under this plan (25 for graduate loans). Loans with original balances of $12,000 or less are forgiven after 10 years of repayment.
How to enroll in the SAVE plan
First, the SAVE plan is officially replacing the Revised Pay as You Earn (REPAYE) plan, which is the most popular income-driven repayment plan today. If you are enrolled in the REPAYE plan – or you were prior to the 2020 repayment pause – you will be automatically enrolled in the SAVE plan. Your payments will be adjusted based on the new criteria.
If you aren't currently enrolled in REPAYE, you can sign up for the SAVE plan before student loan repayment starts at StudentAid.gov/IDR.
Who should (and shouldn't) enroll in the SAVE plan?
The simple answer is that the vast majority of student loan borrowers will benefit from enrollment in the SAVE plan. As mentioned, if you're in the REPAYE plan now, this will happen automatically. If you aren't, the SAVE plan is likely to be the best option available to you. The only exceptions are borrowers with incomes high enough so that their monthly loan payments would be no different than the standard 10-year repayment plan, and even in these cases, it could still be worth enrolling. After all, even though your income is high now, the income-based nature of the plan could potentially help you in the future and enrolling now starts the 20-year forgiveness clock.
