Janice Lozano
The Saving on a Valuable Education (SAVE) plan is an income-driven repayment plan for student loans. It is designed to make monthly payments more affordable for borrowers. The SAVE plan is currently on hold, with borrowers in an indefinite payment pause, but interest will start building from August 1, 2025. The plan is not suitable for everyone, and borrowers are advised to use the loan simulator tool to calculate the best repayment option for their situation.
| Characteristics | Values |
|---|---|
| Name | Saving on a Valuable Education (SAVE) Plan |
| Type | Income-driven repayment plan |
| Aim | To make student loan repayment more affordable |
| Target Group | Families and individuals with low or middle incomes |
| Monthly Payment | Based on income and family size |
| Interest Capitalization | None when leaving IDR |
| Interest Accrual | Covered by the government |
| Loan Forgiveness | After 20 years for undergraduate loans or 25 years for graduate loans |
| Loan Types | Excludes Parent PLUS loans and direct consolidation loans used to repay Parent PLUS loans |
| Status | On hold due to a federal court injunction |
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What You'll Learn
How the SAVE plan makes student loan repayment more affordable
The Saving on a Valuable Education (SAVE) plan is an income-driven repayment plan aimed at making student loan repayment more affordable for federal loan borrowers with low or middle incomes. The SAVE plan is designed to offer lower monthly payments compared to other income-driven repayment (IDR) plans. Under the SAVE plan, monthly payments are based on income and family size, with higher incomes resulting in higher monthly payments. This means that some borrowers may see their monthly loan payments reduced to $0. Additionally, the SAVE plan offers an extended grace period and an interest subsidy from the government, which can further reduce monthly payments.
The SAVE plan replaces the Revised Pay As You Earn (REPAYE) plan and differs from the standard repayment plan, which is balance-driven rather than income-driven. While the standard plan aims to pay off debt in 10 years regardless of the original balance, the SAVE plan offers loan forgiveness after 20 years for undergraduate loans or 25 years for graduate loans. However, borrowers with original principal balances of $12,000 or less can receive forgiveness after 120 payments. It's important to note that the SAVE plan requires annual income recertification, and a Court order is currently blocking the US Department of Education from operating the plan.
The SAVE plan may not be the best option for everyone. Those with higher incomes may find lower monthly payments under the standard repayment plan. Additionally, the SAVE plan's dynamic monthly payments may be undesirable for those who prefer the stability of fixed monthly payments. Furthermore, the plan is not applicable to Parent PLUS loans or direct consolidation loans used to repay Parent PLUS loans.
To determine the most suitable repayment plan, individuals can utilise loan simulator tools or run their calculations to consider various factors, including income, family size, loan type, and repayment goals. While the SAVE plan offers affordability and potential loan forgiveness, it is essential to evaluate all available options to make an informed decision.
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The pros and cons of the SAVE plan
The Saving on a Valuable Education (SAVE) plan is an income-driven repayment plan for student loans. It is designed to be the most affordable repayment option for borrowers, particularly those with low and middle incomes. However, it is not suitable for everyone. Here are some pros and cons of the SAVE plan:
Pros
- The SAVE plan bases monthly payments on a percentage of the borrower's income, which is typically lower than other repayment plans.
- The Department of Education will pay all the interest that the borrower's monthly payments don't cover.
- The SAVE plan could slash monthly payments in half for borrowers with undergraduate student loans.
- Borrowers can make progress toward loan forgiveness during forbearance or deferment periods.
- The SAVE plan will forgive the remaining balance after 10 to 25 years, depending on the loan amount.
Cons
- The SAVE plan is not available for parents who took out loans on behalf of their children.
- The SAVE plan may not be the best option for borrowers with higher incomes, as their monthly payments may be lower on the standard repayment plan.
- The SAVE plan has faced legal challenges and is currently blocked by a federal court, which ruled that the Education Secretary exceeded their constitutional authority in implementing it.
- The SAVE plan may not be suitable for borrowers who prefer the stability of fixed monthly payments.
- The SAVE plan may not be the best option for borrowers who want to pay off their loans in a shorter period.
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How to know if the SAVE plan is right for you
The Saving on a Valuable Education (SAVE) plan is an income-driven repayment plan for student loans. It is designed to make monthly payments more affordable for people who might be struggling to keep up with their loan obligations. The plan is currently on hold, with borrowers in an indefinite payment pause, but interest will start building from August 1, 2025.
The SAVE plan is not the best option for everyone. Here are some things to consider when deciding if the SAVE plan is right for you:
- Your income: The SAVE plan is most beneficial for borrowers with low or middle incomes. The higher your income, the higher your monthly payment will be.
- Your repayment goals: If you are trying to pay off your loans in a shorter period of time, the SAVE plan may not be the best option. While a higher income may result in higher monthly payments, meaning you could pay off your balance faster, you may also miss out on the benefit of having some of your debt forgiven.
- Your loan type: The SAVE plan is only available for federal student loans. Parent PLUS loans and any direct consolidation loans that were used to repay Parent PLUS loans are not eligible.
- Your current repayment plan: The SAVE plan may not offer you a lower monthly payment compared to the standard repayment plan, especially if you have a higher income.
To evaluate if the SAVE plan is right for you, you can use the loan simulator tool on the Federal Student Aid website or run your own calculations to see what repayment option best fits your needs.
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How the SAVE plan differs from other repayment plans
The Saving on a Valuable Education (SAVE) Plan is an income-driven repayment (IDR) plan. It differs from other repayment plans in several ways. Firstly, it caps borrowers' monthly federal student loan bills at a portion of their income, which is typically lower than other IDR plans. For borrowers with undergraduate loans, the repayment amount is set at 5% of discretionary income, while borrowers with graduate school loans pay 10%, and those with both undergraduate and graduate loans pay a weighted average between 5% and 10%.
Secondly, the SAVE plan can result in lower monthly payments compared to the standard repayment plan, especially for those with lower incomes. While the standard plan has fixed monthly payments to pay off the debt in 10 years, the SAVE plan's monthly payments are based on income and family size, which can be as low as $0 per month.
Thirdly, the SAVE plan offers forgiveness of remaining debt after a set number of payments. This is a shorter period than other IDR plans, which typically offer forgiveness after 20 or 25 years. For borrowers with principal loan balances of $12,000 or less for undergraduate or graduate study, the SAVE plan cuts down the forgiveness period to 10 years.
Additionally, the SAVE plan covers any unpaid interest each month as long as the borrower makes their monthly payments, preventing leftover interest from accruing. This is in contrast to the REPAYE plan, which the SAVE plan replaced, where unpaid interest would mount over time.
However, it is important to note that the SAVE plan may not be the best option for everyone. Those aiming to pay off their loans in a shorter period or trying to pay a certain amount over time may find that the SAVE plan does not align with their repayment goals. The total principal balance, income level, and loan type will determine whether the SAVE plan is the best option for an individual.
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How to apply for the SAVE plan
The Saving on a Valuable Education (SAVE) plan is an income-driven repayment plan for student loan borrowers. It is touted as the most affordable repayment plan, aiming to cut federal student loan borrowers' payments by half and save them thousands of dollars a year.
- Visit the official website of the Education Department or Federal Student Aid. The SAVE plan application is available on the Education Department website.
- Gather the required information and documents. You will typically need to provide your federal student aid ID, contact information, and financial information.
- Complete the IDR application form. The application process usually takes around 10 minutes to finish.
- Submit the application and wait for processing. Due to the high volume of applications, processing times may vary.
- Stay updated on the status of your application. You can check the status of your application by logging into your account on the Education Department website or Federal Student Aid website.
- Enroll in the SAVE plan once your application is approved.
It is important to note that the SAVE plan may not be the best option for everyone. It is recommended to use the loan simulator tool or seek expert advice to compare all the available repayment options and choose the most suitable one for your specific situation.
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Frequently asked questions
SAVE, formerly known as REPAYE, is an income-driven repayment plan that aims to make monthly payments more affordable for borrowers.
The SAVE plan bases monthly payment amounts on income and family size, which can lower payments to as low as $0 per month. The higher the income, the higher the monthly payment.
The SAVE plan can reduce monthly payments and save borrowers thousands of dollars a year. It also offers an extended grace period and covers any interest unpaid each month, as long as the borrower keeps up with their monthly payments.
The SAVE plan may not be the best option for borrowers who want to pay off their loans in a shorter period. It also requires borrowers to recertify their income every year and loans forgiven through the plan are typically treated as taxable income.
