The SAVE Plan is intended to be the most accommodative income-driven student loan repayment plan to date, reducing monthly payments for virtually all borrowers. It will accomplish this goal by making two big changes compared to other income-driven repayment (IDR) plans.
First, the SAVE Plan is lowering the maximum required payment on undergraduate student loans to just 5% of the borrower's discretionary income. This is a big change from the 10% figure most existing IDR plans use. Payments for graduate school loans remain at 10% of discretionary income, but borrowers with both types will have payments based on a weighted average (between 5% and 10%).
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Second, the SAVE Plan reduces the amount of income that is considered to be discretionary in the first place. Previous guidelines considered anything above 150% of the federal poverty level to be discretionary, but the SAVE Plan raises this to 225%.
In a nutshell, the SAVE Plan reduces the amount of your income that can even be considered for student loan repayment and lowers the percentage of the considered income you can be required to pay.
Who will get a $0 monthly payment?
With these two principles in mind, student loan borrowers who don't have any discretionary income as defined by the SAVE Plan won't have to make any student loan payments.
In this table, you'll find the 2023 federal poverty guidelines for different family sizes, as well as 225% of each corresponding poverty level. If your household income is less than the number in the 225% column that corresponds to your family size, you won't be required to make any student loan payments whatsoever under the SAVE Plan.
|
Family Size |
2023 Federal Poverty Guideline (48 Contiguous States) |
225% of Poverty Level |
|---|---|---|
|
1 |
$14,580 |
$32,805 |
|
2 |
$19,720 |
$44,370 |
|
3 |
$24,860 |
$55,935 |
|
4 |
$30,000 |
$67,500 |
|
5 |
$35,140 |
$79,065 |
|
6 |
$40,280 |
$90,630 |
Data source: Department of Health and Human Services. Poverty guidelines are higher in Alaska and Hawaii.
It's also worth noting that these figures refer to adjusted gross income (AGI). As an example, let's say you and your spouse both have federal student loans, and that you have two young children. One of you works as a teacher and has AGI of $55,000 per year, while the other is a stay-at-home parent. Because your AGI is less than the $67,500 figure that applies to a family of four in the table, your required student loan payment will be $0.
Three caveats
If you're among the more than 1 million federal student loan borrowers who will have a $0 monthly payment under the SAVE Plan, it can certainly be a big financial relief. And even if you aren't, the SAVE Plan could make your student loans much more manageable.
However, there are a few caveats to keep in mind:
- First, enrollment in the SAVE Plan is only automatic for those who were previously enrolled in the REPAYE income-driven plan (which SAVE is replacing). If you were enrolled in any other repayment plan before the payment pause or if you'll be entering repayment for the first time, you'll need to apply for the SAVE Plan on the Department of Education's website.
- Second, some provisions of the SAVE Plan won't be in full effect until mid-2024. The discretionary income change that makes over 1 million borrowers' payments $0 is immediate, as is the elimination of adding unpaid interest to your loan balance. However, the reduction from 10% to 5% of discretionary income toward undergraduate loans and several other provisions won't be effective until July 2024.
- Finally, just because you get a $0 monthly payment in 2024 doesn't mean your student loan payment will permanently be zero. The Department of Education will use your tax return information to recertify your enrollment every year, and if your income rises, your payment can adjust accordingly.
An easier path to loan forgiveness
By lowering payments for most borrowers and lowering them to $0 for many, not only is the SAVE Plan reducing your financial burden in the near term, but it can help you eventually get more of your loans forgiven. Any remaining balance is forgiven after 20 or 25 years in repayment for most borrowers, so by paying less in the meantime, your eventual lump-sum forgiveness amount could be much higher.
