The Biden-Harris Administration has recently launched the Saving on a Valuable Education (SAVE) Plan. If you’ve been looking for an affordable way to pay off your student loan debt, this new Income-Driven Repayment (IDR) Plan may be just what you need.
With today’s rising tuition costs and increasing amounts of student debt, the SAVE Plan can help provide you with affordable monthly payment options while reducing overall interest charges. Read on to learn more about how this new IDR plan can help you find financial relief.
What Is An Income-Driven Repayment Plan?
Income-driven repayment plans help make your federal student loan payments more feasible based on your income and family size. IDR plans also come with a forgiveness benefit, which forgives the remaining balance on your loan after making qualified payments after 10-25 years.
The US Department of Education offers four types of IDR plans, including the following:
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income Contingent Repayment (ICR)
- Saving on a Valuable Education (SAVE) Plan- Previously known as Revised Pay as You Earn (REPAYE)
What Is The SAVE Plan?
The SAVE Plan is a new IDR plan introduced by the US Department of Education to replace the REPAYE Plan. The US Department of Education calls it “the most affordable plan yet.” Borrowers currently enrolled in the REPAYE Plan will be automatically transferred to the SAVE plan, and no action is required on their end. One of the most significant differences in this plan is that it will cut monthly student loan payments in half, and a larger percentage of borrowers may have $0 monthly payments.
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Here are some of the key features of the new SAVE plan:
- Lower monthly payments: Under the new SAVE plan, monthly payment amounts for borrowers are based on a more generous calculation of their discretionary income, which means that more low-income borrowers could pay as little as $0 a month. The income exemption increased from 150% to 225% of the poverty line.
- Payments are recalculated automatically every year: Borrowers who enroll in an IDR plan can sign up to have their income automatically recertified yearly instead of having to manually re-apply.
- Early balance forgiveness for low-balance borrowers: Borrowers with a principal loan balance of less than $12,000 can have their remaining balance forgiven after making 120 consecutive payments over 10 years, instead of 20 to 25. The SAVE plan will add an additional 12 payments for every $1,000 borrowed after that.
- Reduce undergraduate loan payment by half: Starting in 2024, student loan borrowers with undergraduate loans may only pay 5% of their income based on the original principal balances of their loans. Those with a mix of undergraduate and graduate loans may only pay a weighted average of 5% to 10%.
- Borrowers will not be charged interest as long as required payments are made: Unlike previous IDR plans, in the SAVE Plan, when a borrower makes their monthly payment, they will not be charged additional interest that is not already covered under their payment.
Eligibility Requirements For The SAVE Plan
There is no income requirement to qualify for the SAVE plan, and any borrower with eligible federal student loans may qualify. Eligible federal student loans include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
Please note that Parent PLUS loans are not eligible for SAVE, but once consolidated may be eligible for Income-Contingent Repayment (ICR).
How To Apply For The SAVE Plan
You can apply for the SAVE plan by visiting the student aid website. Be sure to gather information such as your Federal Student Aid ID, personal information, and tax return information when applying. The application typically takes around 10 minutes to complete, but you can also pause the application and complete it at a later time.
Once you submit your application, the Department of Education and your student loan servicer will contact you with further details.
If you are already enrolled in the REPAYE Plan, there is no need to apply for the SAVE Plan, as you will be automatically switched over. Your monthly payment will be recalculated based on when you last certified your income.