Borrowers of federal student loans will be able to enroll in a new income-driven repayment plan, which education officials believe might reduce their monthly payments.
The Revised Pay As You Earn (REPAYE) Plan will be replaced by the Saving on a Valuable Education (SAVE) Plan. Borrowers who are already on the REPAYE Plan will be immediately enrolled in the new SAVE Plan.
The monthly payment of a borrower under the SAVE Plan is decided by their income and family size. Federal student loans will resume charging interest in September, with payments due in October.
What is the SAVE Repayment plan?
The following benefits will go into effect as soon as the SAVE Plan is active.
The income exemption under the SAVE Plan is raised from 150% to 225% of the poverty threshold.Your monthly payment amount in this plan is dependent on discretionary income, which is defined as the difference between your AGI and 225% of the US Department of Health and Human Services Poverty Guideline amount for your family size.
“That means you will not owe loan payments if you are a single borrower earning $32,800 or less or a family of four earning $67,500 or less (amounts are higher in Alaska and Hawaii),” according to the Department of Education. Borrowers who earn more than these amounts will save at least $1,000 per year as compared to the present income-driven repayment schemes.”
The table below shows the 2023 Poverty Guidelines:
| Persons in family/household | Poverty guideline |
|---|---|
| 1 | $14,580 |
| 2 | $19,720 |
| 3 | $24,860 |
| 4 | $30,000 |
| 5 | $35,140 |
| 6 | $40,280 |
| 7 | $45,420 |
| 8 | $50,560 |
Following a scheduled payment, the plan eliminates 100% of the remaining interest on both subsidized and unsubsidized loans.This implies that as long as you make your monthly payments, your student loan debt will not increase owing to unpaid interest.
The following is an example from the Department of Education: For instance, “if $50 in interest accumulates each month and you have a $30 payment, the remaining $20 would not be charged.”
Spousal income is excluded from the SAVE Plan for married borrowers who file separately. An IDR application does not require the signature of a spouse.
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What are the SAVE Plan benefits that will go into effect in 2024?
There are additional benefits that won’t go into effect until July 2024.
The Department of Education listed the following benefits:
- Payments on undergraduate loans will be cut in half (reduced from 10% to 5% of income above 225% of the poverty line). Borrowers who have undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income based upon the original principal balances of their loans.
- Borrowers with original principal balances of $12,000 or less will receive forgiveness of any remaining balance after making 10 years of payments, with the maximum repayment period before forgiveness rising by one year for every additional $1,000 borrowed. For example, if your original principal balance is $14,000, you will see forgiveness after 12 years. Payments made previously (before 2024) and those made going forward will both count toward these maximum forgiveness timeframes.
- Borrowers who consolidate will not lose progress toward forgiveness. They will receive credit for a weighted average of payments that count toward forgiveness based upon the principal balance of the loans being consolidated.
- Borrowers will automatically receive credit toward forgiveness for certain periods of deferment and forbearance.
- Borrowers will be given the option to make additional “catch-up” payments to get credit for all other periods of deferment or forbearance.
- Borrowers who are 75 days late will be automatically enrolled in IDR if they have agreed to allow the Department of Education to securely access their tax information.
What will my monthly payments be under the SAVE plan?
Your monthly payment amount is calculated by the SAVE Plan depending on your income and family size.
For example, somebody earning less than $32,800 per year will have a monthly payment of $0. You do not have to pay anything that month if you have a $0 payment due.
According to the Department of Education, a single person with a $25,000 loan at 5% interest and a yearly income of $38,000 would have a $43 monthly payment under the SAVE Plan.
Under the SAVE Plan, your loan servicer will compute your actual monthly payment amount.
The illustration below depicts an estimated monthly payment under the SAVE Plan.
How can you apply for the SAVE Plan?
Anyone who is already enrolled in the REPAYE Plan will automatically be put on the SAVE Plan as soon as it’s available. If you apply for the REPAYE Plan now, you will automatically be put on the SAVE Plan when it’s available.
How to check if you are on the REPAYE Plan
You can check and see if you’re on the REPAYE Plan by taking the following steps:
- Log in to StudentAid.gov
- Go to your My Aid page
- Scroll down, and view your loans.
Each loan will list a repayment plan. If you see that you are in the REPAYE Plan, that means you’ll automatically be enrolled in the SAVE Plan. If you’re on a different repayment plan, you’ll need to switch into REPAYE now, or SAVE once it’s available, to receive the benefits of the SAVE Plan.
If you don’t have a StudentAid.gov account, you can create an account.