SAVE Plan: How the New Student Loan Repayment Program Works

The Department of Education recently released final details about its long-anticipated new income-driven repayment (IDR) plan. Known as the SAVE plan, an acronym for “Saving on a Valuable Education,” it's expected to save borrowers at least $1,000 a year, with many borrowers eligible for $0 monthly payments.

With federal student loan payments resuming after September 1, familiarizing yourself with this new option is essential to ensure you’re on the most beneficial repayment plan. Here’s how the SAVE plan works and how to access it once enrollment opens.

What is the SAVE plan?

On June 30, 2023, the Biden-Harris administration announced the details of the new SAVE plan. This income-driven repayment plan replaces the existing Revised Pay As You Earn (REPAYE) plan, and is designed to make higher education less expensive for low- and middle-income students.

Depending on your situation, the SAVE plan can reduce your federal student loan payments by as much as half. Single borrowers who earn an annual income of $32,800 or less will have a $0 monthly payment under the new plan. It’s estimated that borrowers who earn more than that will still net more than $1,000 in overall savings each year compared to other IDR plans.

In addition to lowering payments, the plan also offers a 100% subsidy for unpaid interest, allows forgiveness sooner if you have a small loan balance, and, if you’re married, doesn’t include your spouse’s income when calculating your monthly payment.

How the SAVE plan works

You can only access income-driven repayment plans, including the new SAVE plan, if you have federal student loans. Parent PLUS loans are not eligible, but most other types are, including:

• Direct Subsidized or Unsubsidized Loans
• Graduate or professional PLUS loans
• Direct Consolidation Loans that didn’t include parent PLUS loans
• Consolidated Federal Family Education Loans (FFEL) that didn’t include parent PLUS loans

Like other IDR plans, the SAVE plan uses your family size and income to determine your monthly payment amount. In the short term, SAVE payment amounts will equal 10% of your discretionary income.

Borrowers under the SAVE plan will be in repayment for 20 or 25 years, depending on their situation. Those with loans from only their undergraduate degree have a 20-year repayment term, while those with debt from a graduate program will pay for 25 years.

After completing the required monthly payments, any remaining balance can be forgiven. However, the forgiven balance might be treated as taxable income.

If you enroll in the SAVE plan, expect these additional benefits:

• More of your income is exempt: Your monthly payment is calculated based on multiple factors, but a significant one is your discretionary income. This is the difference between your adjusted gross income and the federally determined poverty line. The SAVE plan compares your income to 225% of the poverty threshold, compared to the 150% ratio that other IDR plans use. That means more of your money is protected from repayment, and more borrowers will be eligible for a $0 payment.
• Unpaid interest is covered: If your monthly payment is too small to cover all the interest that accrues each month, the Department of Education will cover 100% of the remaining unpaid interest. As long as you stay on top of your payments, interest won’t be added to your balance.
• Excludes your spouse’s income: If you’re married and file your taxes separately, you no longer have to include your spouse’s income. Excluding spousal earnings effectively lowers the income that’s used for payment calculation so you avoid the so-called “marriage penalty.”

More SAVE benefits to start next year

The three SAVE plan features mentioned above were implemented in the summer of 2023 when enrollment officially opened. However, more changes are rolling out on July 1, 2024, which can cut your costs even more.

• Pay 5% of your income: If you only have undergraduate loans, you’ll see your monthly payment reduced from 10% to 5% of your discretionary income. For those repaying graduate loans, payments will be calculated based on a weighted average between 5% and 10% of income, depending on your original balance.
• Earn forgiveness after 120 payments: If the original loan amount you borrowed was $12,000 or lower, you can access loan forgiveness in just 10 years, instead of 20 or 25.
• Automatic enrollment: Any borrower who doesn’t make a payment for 75 days and previously agreed to disclose federal tax information to the Department of Education will be automatically enrolled in the SAVE plan.
• Paused payments will still earn credit: If you defer or forbear your loans for certain reasons — like unemployment, military service, or a natural disaster — your paused payments will still count toward the number required for forgiveness. If your reason doesn’t qualify, you can make catch-up payments to receive credit for that period.
• Extra help if you default: If you have a loan in default, you’ll get access to the Income-Based Repayment plan. If you would’ve had a $0 payment at the time of default, the loan is automatically put into good standing so you can then access SAVE.
• Consolidation won’t reset the clock: If you consolidate your loans midway through repayment, you can get credit for the payments you made before consolidation instead of having your payment count reset to zero.

How to enroll in the SAVE plan

The first phase of the SAVE plan became available during the summer of 2023, and the full program benefits go into effect in July 2024.

To enroll in the SAVE plan, you can submit an IDR plan request at StudentAid.gov and select SAVE as your preferred plan. After logging in to your account, provide your contact information, the reason for the request, employment and income, family size, and marital status.

If you’re an existing REPAYE plan participant, you’ll automatically be switched to the SAVE plan when enrollment opens. Borrowers who are already under another IDR plan can request a switch to the SAVE plan using the same process above.

How is the SAVE plan different from other IDR plans?

Depending on your situation, the SAVE plan’s benefits — once all features become available in July 2024 — offer a significant edge over other IDR plans. Here’s how SAVE will compare with existing plans once it's in full effect.