New SAVE Repayment Plan Offers Low Monthly Payments, Less Paperwork

Posted 8/1/2023

After years of inflation and stagnating wages, student loan borrowers could use some help. In response, the Department of Education (ED) has announced a new repayment plan that offers much lower monthly payments. The Saving on a Valuable Education (SAVE) Plan enacts immediate, substantial reforms which should make it easier for financially struggling borrowers to keep up with their loans.

What is the SAVE Repayment Plan?

Like most repayment plans, the SAVE Plan is complicated. It’s also evolving. One set of benefits will be available when the program launches in late Summer 2023. A second should kick in during Summer 2024.

The SAVE Plan is the latest addition to Income-Driven Repayment (IDR) plans currently available to borrowers. As the name suggests, IDR plans tie a borrower’s monthly payments to the amount they earn each year. SAVE will replace the existing REPAYE plan.

The SAVE plan features three major benefits available day one:

Lower monthly payments – SAVE offers the lowest monthly payments of any IDR student loan repayment plan. If you’re single and make $32,800 or less, your monthly payments will be zero dollars. Even if you make well above that amount, your total payments should drop by $1,000 per year compared to other IDR plans. Unlike other plans, if you’re married and file taxes separately, your spouse’s income won’t count towards your own. ED offers this example of what a typical borrower might pay.
Simplified application and recertification process – With your permission, ED will pull your income and family status straight from your IRS data. That makes applying easy and annual income recertification automatic. As your income rises or falls year-to-year, your monthly payment will adjust to match. You’ll receive a notice each year updating you on the change.
Limits on accumulated interest – On the SAVE Plan, your monthly accrued interest is capped by the size of your monthly payment. For example, if your monthly payment is $30, you can only be charged $30 in interest. Your total debt stays the same. The only catch is you must make your monthly payment, otherwise you’ll be charged the full amount.Other IDR plans don’t cap accrued interest. If your account accrues $50 in interest each month and your monthly payment is only $30, your account balance grows by $20. This traps many borrowers in a cycle of ever-increasing debt.

Who Should Apply for the SAVE Repayment Plan?

For many borrowers, the SAVE Plan offers superior repayment terms. That doesn’t mean it’s right for everyone. The plan may be a good match if you:

Cannot afford your current monthly payments – SAVE was specifically designed to help people stay current on their student loans during financially difficult periods.
Need financial flexibility – If your monthly budget is uncomfortably tight, securing a lower payment through the SAVE plan can give you room to breathe.
Are already on an IDR plan – If you are enrolled in the REPAYE plan, your loans automatically will be converted to the SAVE Plan once the program begins. If your loans are on a different IDR plan, you may prefer SAVE’s terms. It can lower your monthly payments, and will eliminate the hassle of recertifying for the plan every year. The path to loan forgiveness also is much shorter than existing IDR plans.

Borrowers who can easily afford payments through the Standard Repayment Plan* should probably avoid SAVE. The Standard Plan guarantees the quickest, least-expensive route to paying off your loans. While SAVE and other IDR plans offer dramatically lower monthly payments, they extend the overall time you’ll make payments. That means more interest over time, which ultimately costs a borrower thousands of dollars more than Standard repayment.

How Do I Apply for the SAVE Repayment Plan?

At the moment (July 2023), there is no direct way to apply for the SAVE Plan. ED is still working on the application process. In the meantime, you can switch your loans to the REPAYE Plan. All borrowers enrolled in REPAYE will be automatically transferred to the SAVE Plan when the program begins. It’s a roundabout process, but it means you’ll gain access to the benefits of SAVE as soon as possible. ED says all IDR plan applications submitted this summer will be processed in time for payments to begin in October 2023.

An official application process should be available in the near future. To keep up with changes to student loan repayment, sign up for email alerts through StudentAid.gov.

What Benefits Will Be Added to the SAVE Repayment Plan?

ED hopes to introduce several additional benefits to the SAVE Plan within a year. One of the most exciting is a shortened path to loan forgiveness.

Current IDR plans offer forgiveness after 20 or 25 years of payments. If everything goes according to plan, the SAVE Plan will shorten that period to 10 years for those who originally borrowed $12,000 or less. One year would be added for each additional $1,000 borrowed. For example, someone who initially borrowed $13,000 could get loan forgiveness after 11 years.

Additional benefits include even lower monthly payments and changes to rules regarding which payments count towards loan forgiveness.

We Can Help!

If you need help picking a student loan repayment plan, Student Connections can help! Talk to one of our Borrower Advocates at (866) 311-9450, Monday through Friday, 9:00 a.m. to 6:00 p.m. ET. Our services are paid for by schools across the country and are free to you.

Prefer a DIY approach? Read our guide to repayment, “How to Survive Student Loan Repayment in 2023.”