SAVE is a new student loan repayment plan that would be considered an IDR plan. IDR stands for income-driven repayment. With these plans, the minimum monthly payment borrowers are required to submit each month is determined by their discretionary income and family size. To help ease the burden of student loan debt, the Department of Education has restructured the Save on a Valuable Education (SAVE) Plan and introduced a new series of income-driven repayment plans available to existing and future borrowers of certain student loans.
Here, you will learn how the SAVE plan works, where you can learn more about this income-driven repayment plan, how your monthly payment is calculated, and how you can work student loan repayments into your current budget to ensure your personal finance success!
What Is the SAVE Plan, and How Does It Work?
The SAVE Plan was designed to make student loan repayment more manageable for the borrower by basing the minimum monthly payment due on their income and family size instead of on the overall student debt amount. After a set period of making consistent payments, borrowers can look forward to having the remainder of the student loan debt forgiven. Some borrowers may have as little as 10 years of payments before receiving full loan forgiveness!
The SAVE Plan is scheduled to lower student loan monthly payments more than any other IDR plan and also includes other unique features such as:
- Interest rate benefits – As long as borrowers make their full monthly payment, the government will cover any leftover interest accrued for that month. That means borrowers won’t have to worry about their total balance going up because of “unpaid” interest.
- Less income considered – Instead of using your adjusted gross income, the SAVE Plan considers your discretionary income, allowing borrowers to qualify for lower payments. Your discretionary income is how much money you bring home on a regular basis after deducting taxes, spending on necessary items, and other mandatory charges.
The Department of Education is also planning on making more adjustments meant to benefit borrowers regarding their SAVE Plan. These effects are scheduled to go into effect in summer 2024. You can learn more about the new SAVE Plan by visiting the Department of Education’s website.
How Do I Qualify for the SAVE Plan?
There are over 43.6 million people with outstanding student loans.1 However, not everyone will qualify for an IDR plan. The U.S. Department of Education set out email notifications to eligible borrowers for an income-driven repayment plan as of July 14, 2023. The department will continue to contact eligible borrowers for the remainder of the year. You can apply for the SAVE plan directly on the Department of Education’s website.
Applying for an income-driven repayment plan was designed to be quick and efficient; most people can complete the application in just 10 minutes or less. Also, you can complete part of the application, save your progress, and come back to it later if need be.
In order to complete an income-driven repayment plan application, you’ll need the following information:
- Verified FSA ID
- Financial information
- Personal information
- Your spouse’s information (if applicable).
According to the U.S. Department of Education, IDR plans are for consumers who:
- Have at least 240 – 300 months’ worth of eligible payments on their student loans.
- Are looking for a lower or more affordable monthly payment on their federal student loans.
- Are currently on an IDR plan but need to correct or update changes to their current plan.
Unfortunately, private student loans (like a personal loan from a direct lender) not funded by the federal government are not eligible for income-driven repayment plans (we’re looking at you, Sallie Mae).
An Overview of Income-Driven Repayment Plans
If you allow the Department of Education to access your tax information, they will automatically pull your income and family size information to calculate your monthly payment. However, if any of your information changes before the Department of Education recertifies your data, you can contact your loan servicer and inform them of any updates.
When calculating your income to determine your monthly payment amount, the Department of Education will consider your discretionary income. Depending on your income, you may even qualify for a monthly payment of $0! After 20 or 25 years (depending on the specific IDR plan you have), any remaining loan balance is forgiven.
To calculate your family size, the Department of Education will ask about your spouse and any other children or dependents under your care.
Other Types of Income-Driven Repayment Plans
The U.S. Department of Education offers a few different types of income-driven repayment plans, they are:
- Pay As You Earn (PAYE) Repayment Plan
- Income-Based Repayment (IBR) Plan
- Income-Contingent Repayment (ICR) Plan
Below is more information on each repayment plan.
| Attribute | PAYE Plan | IBR Plan | ICR Plan |
| Eligibility | Must be a new borrower on/after 10/1/2007 with a disbursement on/after 10/1/2011. | Must have high debt relative to income. | Available to any borrower with eligible federal student loans. |
| Payment Amounts | Generally, 10% of discretionary income, but never more than the 10-year Standard Repayment Plan amount. | Generally, 10% or 15% of discretionary income (depending on when you borrowed). | The lesser of 20% of discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to income. |
| Repayment Period | 20 years. | 20 years if a new borrower is on/after 7/1/2014; otherwise, 25 years. | 25 years. |
| Interest Forgiveness | The government may pay the unpaid interest on Subsidized Stafford Loans for up to three consecutive years from the date of repayment under PAYE. | Subsidized loans may receive interest subsidy for up to three consecutive years if your IBR payment doesn’t cover the interest. | No subsidy on interest. Interest may be capitalized. |
| Marital Status Consideration | Married borrowers can file taxes separately to exclude their spouse’s income. | Married borrowers can file taxes separately to exclude their spouse’s income (only for loans taken after 7/1/2014). | Spouse’s income and loan debt are considered, regardless of tax filing status. |
| Loan Forgiveness | The remaining balance is forgiven after 20 years of qualifying payments. | The remaining balance is forgiven after 20 or 25 years of qualifying payments. | The remaining balance is forgiven after 25 years of qualifying payments. |
| Eligible Loans | Direct Subsidized and Unsubsidized Loans, Direct PLUS loans made to students, and Direct Consolidation Loans that do not include PLUS loans made to parents. | Direct Subsidized and Unsubsidized Loans, all Stafford Loans, All PLUS loans made to students, and Consolidation Loans (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents. | Direct Subsidized and Unsubsidized Loans, Direct PLUS loans made to students, and Direct Consolidation Loans. |
Considerations When Planning for Your Income-Driven Repayment Plan
The Department of Education offers a Loan Simulator to help you estimate the details and projected total cost of your student loans. The simulator can give you personalized information on the following aspects of your loan under your new IDR plan:
Monthly Payments
Your monthly payments are how much you are expected to contribute towards your student loan repayment each month. Your monthly payments will be calculated using your discretionary income and family size.
Repayment Period
Different IDR plans come with different repayment periods. Some plans allow total loan forgiveness after 10 years, while others may require 20 – 25 years worth of monthly payments. Knowing when your loan repayment will end can help you plan for other financial endeavors and personal finance goals.
Projected Loan Forgiveness
While your total amount of student loan debt may seem overwhelming, know that you most likely won’t have to repay all of it. By using your monthly payments, you can estimate how much student loan debt you are projected to pay off and how much you should have forgiven.
Tax Information For Income-Driven Repayment Plans
While IDR plans were designed to make student loan repayment more affordable, there is still important tax information to consider. Under the current IRS rules, borrowers who receive student loan forgiveness may be required to pay income tax on the forgiven amount at the end of their repayment period. However, keep an eye out for any updates from the IRS, as this tax information may change.
Total Interest Paid
Interest rates are one of the most important aspects of any kind of loan. Depending on the interest rate charges on a loan, you may find the total cost of funding to be drastically different. Therefore, it’s essential to calculate how much interest you will end up paying throughout your loan repayment period.
Other Important Aspects of IDR Plans
For borrowers making payments under the Public Service Loan Forgiveness (PSLF) Program, qualification for forgiveness may occur after 10 years of payments instead of after 20 – 25 years. Payments that qualify for the PSLF program include all payments made under any other income-driven repayment plan.
Repayment periods also include months when consumers are submitting monthly payments as normal, as well as:
- Periods when the borrower is utilizing economic hardship deferment.
- Periods of repayment where borrowers were making payments under other repayment plans (only counts for certain plans).
- Periods when the borrower’s required payment is zero.
FAQ: SAVE and IDR
Yes, you can switch between IDR plans if your circumstances change or if another plan becomes more beneficial for you. However, any unpaid interest may be capitalized (added to the loan principal) when you switch plans.
Generally, taxable income is considered when calculating your monthly payment. This includes wages, salaries, tips, and other taxable income. Some non-taxable income may also be included, depending on the plan.
No, there are no fees for applying for or switching between IDR plans. If you are asked to pay a fee, you might be dealing with a student loan debt relief scam.
If you are married, your spouse’s income and federal student loan debt may be taken into account when calculating your payment, depending on the IDR plan and whether you file taxes jointly or separately.
Some older loans may not be directly eligible for IDR plans. However, consolidating them into a Direct Consolidation Loan can make them eligible.
If you re-enroll in school and your loans are deferred, your IDR payment could be $0, but interest may continue to accrue. You’ll need to re-enter an IDR plan upon completion or exit from school.
Yes, as your income increases, your monthly payment amount may also increase. However, it will never be more than what you would have paid under the standard 10-year repayment plan.
If you’re facing financial hardship, you can apply for a deferment or forbearance to temporarily stop making payments. However, interest may continue to accrue during this period.
Still have questions about your IDR plan? You can contact the U.S. Department of Education Help Center, or the Federal Student Aid Information Center at 1-800-433-3243. You can also head over to the studentaid.gov website to access an agent via their live chat feature.
A Word From CreditNinja on Repaying Student Loans
CreditNinja knows that receiving a valuable education is important to many people. That’s why we encourage everyone to prioritize their student loan repayments to ensure the safety of their personal finance. That way, you can still receive the education you want and keep your finances on track. CreditNinja also has the following tips for people who want to stay on top of their student loan payments:
- Know exactly what you owe so you can better work in your monthly payments with your existing budget and financial responsibilities.
- Sign up for automatic payments so you never miss a monthly payment. (You may even receive a slight discount if you do this!).
- Start an emergency savings fund so you have extra room in your budget to take care of your student loan payments, as well as any other unexpected expenses, such as surprise medical bills.
Looking for more tips and information about getting out of debt, building credit as a college student, bad credit loans, and more? Check out the CreditNinja dojo for tons of free resources!
References:
- Student Loan Debt Statistics [2023]: Average + Total Debt | Education Data
- Income-Driven Repayment (IDR) Plan Request | U.S. Department of Education
- Income-Driven Repayment Plans | Federal Student Aid
