The U.S. Supreme Court struck down the Biden administration’s initial student loan forgiveness plan in June 2023, but the administration has launched a new plan designed to give struggling borrowers some relief. The Saving on a Valuable Education (SAVE) plan provides several benefits, including increased income protection, no unpaid interest growth, reduced monthly payments, and the potential to qualify for loan forgiveness faster. SAVE has replaced the U.S. Department of Education’s (DOE’s) existing Revised Pay as You Earn (REPAYE) income-driven repayment plan. If you’re seeking federal student loan relief, here’s what to know about the new SAVE income-driven repayment (IDR) plan initiative and how it may help borrowers.
1. Increased Income Exemption
Under the new plan, the income exception will increase from 150% under other federal IDR plans to 225%. This means that individual borrowers with annual salaries under $32,805 or families of four who earn less than $67,500 a year will have no monthly payments. Those who make too much to qualify for a $0 monthly payment will also see lower payments due to the increased income exemption.
2. No Unpaid Interest Growth
The DOE won’t charge unpaid interest under the SAVE plan as long as borrowers make monthly payments. This could provide additional relief to up to 70% of those on an existing income-driven repayment plan.
3. Simplified Requirements for Married Borrowers Filing Taxes Separately
Married couples who file their taxes separately will also benefit from the new SAVE plan. Previously, borrowers on REPAYE Plans were required to include their spouses’ income as part of their IDR payment calculations. But under the SAVE plan, these borrowers won’t need to add their spouse’s income to their IDR payment calculations, and spouses won’t need to cosign new IDR applications.
4. Reduced Monthly Payments
Starting in July 2024, borrowers will also benefit from lower monthly payments under the SAVE plan. Undergraduate loan payments will decrease from 10% of annual income above 225% of the federal poverty level to 5%, which will likely cut monthly payments in half. Those with undergrad and graduate loans will pay a 5%-10% weighted average of their earnings based on their initial principal balance.
5. Potentially Faster Loan Forgiveness
Under previous IDR plans, student loan forgiveness was granted after 20-25 years if borrowers met certain criteria. However, under the new repayment plan for student loans, borrowers with relatively small loan balances may have their loans forgiven sooner. For instance, those with balances of $12,000 or less will have their loans forgiven after 120 consecutive payments, or ten years total.
6. Retained Payment Progress
Borrowers who opted for federal loan consolidation in the past would reset the clock on their monthly payments, meaning they’d lose any payment progress they’d made toward public student loan forgiveness (PSLF). With SAVE, borrowers will retain some of their payment progress, which will be based on the weighted average of payments based on the consolidated loans’ principal balances. Additionally, those who are in deferment or forbearance due to certain circumstances, like job loss, cancer treatment, military deployment, or natural disasters, will also receive credit toward student loan forgiveness. They won’t see their payment progress reset if they’re impacted by these issues.
The Bottom Line
While the new student loan repayment plan won’t necessarily eliminate your monthly federal student loan payments—though it could if you meet certain criteria—it provides some helpful relief if you’re struggling financially. It’s an important step toward helping borrowers better manage their federal student loans. For borrowers with private student loans, ELFI offers a refinancing option that could lower your interest rate or reduce your monthly payments if you need help with repayment. Learn more about refinancing with ELFI today.
