Student Loan Repayments: What Is the SAVE Plan?

Borrowers in America owe a combined $1.6 trillion in federal student loan debt, and it’s estimated that over half of all students borrow loans to help fund their education. While there have been various attempts to erase some student debt, it was announced earlier this summer that the student loan forgiveness plan won’t move forward.

Still, there’s some good news for student loan borrowers. The Biden administration has come up with a new plan to offer $0 monthly payments to some graduates and save others an estimated $1,000 per year. What is the Saving on a Valuable Education (SAVE) Plan and how might it affect your student loan payments? Read on to learn more.

Student Loan Borrowing: The Basics

A federal student loan is similar to a traditional loan offered by a credit union or bank, except in this case, the lender is the government. Like a traditional loan, a federal student loan must be repaid with interest. The difference is that federal student loans offer special benefits to students, as they are designed to support the education of college students in the United States. These benefits may include more flexible repayment options and limited, or zero, interest accrual while the student is in enrolled at least half time.

Federal student loans are available to both students, and their parents. Student borrowers don’t need to demonstrate a strong credit history, which can be useful for recent high school graduates who haven’t had time to build their credit. To apply for federal student loans, students must complete the FAFSA, which is the form that determines your eligibility for student aid, including grants, work-study and loans.

What is the SAVE Plan?

While the Biden administration has tried a number of times to cancel student loan debt, these attempts have been blocked by lawmakers and the Supreme Court. In response, the administration has introduced other measures intended to support student borrowers, including the new SAVE Plan.

At it’s core, the SAVE Plan is the REPAYE income-driven repayment plan, with many enhancements. In other words, it helps ensure that borrowers’ monthly student loan repayment bills are adjusted based on their income and family size. If you make less money, or are supporting a bigger household, your monthly payments should be lower than a borrower who earns more or supports a smaller household. As your income and situation changes, so will your monthly payments.

Before SAVE, the federal government offered a different income-based repayment plan known as REPAYE. People who previously qualified for REPAYE will automatically receive the benefits of SAVE—and what’s even better is that SAVE includes key changes so that borrowers can qualify for lower monthly payments.

Benefits to Borrowers

The SAVE Plan is poised to bring a number of benefits to borrowers, many of which go into effect starting summer 2023.

To begin, SAVE increases the income exemption so that graduates earning $32,800 or less (225% of the poverty line) don’t owe loan payments. For a family of four, the cut-off is $67,500 or less.

If your income doesn’t qualify you for a payment exemption, there are still plenty of other benefits. One important change is that SAVE attempts to tackle the issue of runaway interest by eliminating interest payments that exceed a borrower’s monthly payment. This new system means that if you pay what you owe every month, your loan won’t grow as a result of unpaid interest. The federal government estimates that this specific change should benefit around 70 percent of all student loan borrowers.

For people who are married, SAVE also removes needing your spouse to cosign your application for income-drive repayment, because spousal income is not excluded for people who are married but file separately.

More Savings to Come

Beyond the benefits listed above, borrowers can also look forward to more savings when the SAVE Plan goes into full effect in July 2024. These upcoming benefits include:

• Halving undergraduate loan payments from 10% to 5% for borrowers earning over 225% of the federal poverty line
• Student loan forgiveness for borrowers who took out $12,000 or less but are still repaying their loans after 10 years (120 payments)
• Credits toward forgiveness for certain deferments, such as cancer treatment or military service
• More leeway for borrowers who find themselves in deferment or forbearance
• Automatic enrollment in the SAVE Plan for borrowers who go 75 days without making a payment
• Credit for payments made prior to a consolidation, so that progress toward forgiveness is not lost

To learn more about SAVE, visit https://studentaid.gov.