Introduction

Student loan debt is a significant financial burden for many Americans. With outstanding balances reaching $1.39 trillion as of June 2023, finding a manageable repayment plan is crucial. The new Saving on a Valuable Education (SAVE) plan offers a more affordable option for borrowers, replacing the Department of Education’s REPAYE plan. In this article, we’ll explore how the SAVE plan works, who qualifies, and how to sign up.

How Does the SAVE Plan Work?

The SAVE plan aims to make student loan repayment more manageable by addressing various aspects such as income thresholds, interest accrual, and forgiveness timelines. Here are the key features:

1. Reduced Monthly Payments

Under the SAVE plan, monthly payments are a percentage of discretionary income, defined as the difference between household income and 225% of the U.S. poverty guideline. For undergraduate loans, payments are reduced from 10% to 5% of discretionary income. Graduate loans remain at 10%, but a weighted average is applied for borrowers with both types of loans.

2. Higher Income Limits for $0 Payments

The SAVE plan increases the income level that qualifies for $0 monthly payments, making an additional 1 million low-income borrowers eligible. Single borrowers earning around $32,800 per year or a family of four earning $67,500 or less will not have to make payments.

3. Shorter Loan Forgiveness Timeline

Borrowers can earn loan forgiveness in as little as 10 years under the SAVE plan. For those with original principal loan balances of $12,000 or less, forgiveness is granted after 120 payments. Each additional $1,000 in loan balance adds 12 more payments.

4. Less Interest Accrual

With the SAVE plan, unpaid interest will not be added to the loan balance if borrowers make their minimum payments. For example, if a borrower’s monthly payment is $90 and the loan accrues $150 in interest, the remaining $60 will not be charged.

5. Easier Access for Borrowers

The SAVE plan simplifies the enrollment and recertification process. Borrowers can grant the Department of Education access to their tax returns, eliminating the need for manual information submission. Automatic reenrollment is also an option.

Who Qualifies for the SAVE Plan?

Any former undergraduate or graduate student with eligible federal student loans can enroll in the SAVE plan. However, loans in default and federal loans for parents, such as direct PLUS loans, do not qualify. Certain loans like FFEL and Perkins loans must be consolidated into a direct consolidation loan to be eligible.

How to Sign Up for the SAVE Plan

If you’re already enrolled in the REPAYE plan, you’ll be automatically switched to the SAVE plan. For new applicants, follow these steps:

1. Gather necessary information: FSA ID, telephone number, permanent address, financial information, and email address.
2. Complete the income-driven repayment plan application on StudentAid.gov. The application takes less than 10 minutes.
3. Request the lowest monthly payment, which is usually the SAVE plan.

If you’re on a different income-driven repayment plan, you can log in to your StudentAid account and request to switch to the SAVE plan. Use the Loan Simulator to calculate different payment options based on your circumstances.

Is the SAVE Plan Right for Me?

The SAVE plan is a great option for many borrowers, but it may not be suitable for everyone. Consider the following scenarios:

When the SAVE Plan Might Be Right for You

• Your loan balance is less than $20,000.
• You want the lowest monthly payment.
• You’re a low- to medium-income earner.

When the SAVE Plan Might Not Be Right for You

• You have private student loans.
• You want to pay off debt as soon as possible.
• You’re a high-income earner.

Other Income-Driven Repayment Plans

Besides the SAVE plan, there are three other income-driven repayment plans:

Income-Based Repayment (IBR)

IBR caps loan payments at 10% or 15% of discretionary income, depending on when the loan was awarded. Loan forgiveness is granted after 20 or 25 years.

Income-Contingent Repayment (ICR)

ICR requires payments of 20% of discretionary income or the amount you would pay on a fixed 12-year repayment plan, adjusted for income. Repayment lasts 25 years.

Pay As You Earn (PAYE)

PAYE bases payments on income and family size, but eligibility requirements differ. Borrowers can no longer apply for PAYE after July 1, 2024.

The Bottom Line

The SAVE plan offers lower monthly payments, shorter forgiveness timelines, and higher income thresholds, making it a beneficial option for many borrowers. However, it may not be suitable for high earners or those looking to pay off their debt quickly.

If you’re considering the SAVE plan or need assistance with any mortgage services, contact O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate your financial journey.