New SAVE Plan Reduces Student Loan Payments for Low- and Middle-Income Borrowers
The Biden-Harris Administration recently unveiled its much-anticipated income-driven repayment (IDR) plan: the Saving on a Valuable Education (SAVE) plan. The Administration began the rulemaking process in 2021 to create a new IDR plan for Direct Loan borrowers that would make repayment more affordable for low- and middle-income borrowers. While IDR plans are intended to help struggling borrowers avoid default and pay down their loans, certain features of IDR plans, such as interest capitalization, were making it difficult for some borrowers to pay down their student loan debt.
The SAVE plan modifies and replaces the existing Revised Pay as You Earn (REPAYE) plan. Borrowers currently enrolled in the REPAYE plan will automatically be enrolled in SAVE and do not need to take any action. All Direct Loan borrowers in repayment will be eligible to enroll in the SAVE plan and can do so before repayment resumes in October.
The Biden-Harris Administration estimates that the typical student loan borrower will save over $1,000 a year under the new SAVE plan. AccessLex Institute has done a comparison of the SAVE and REPAYE plans to show the difference between total loan amount paid, number of payments, forgiveness amount, and monthly payment amount. Our comparison looks at how these figures differ for three hypothetical borrowers with different incomes who went to law school and took out student loan debt.
While the SAVE plan will be fully implemented on July 1, 2024, there are three elements of the plan that will be available to borrowers by the end of July 2023:
- The amount of income protected from the monthly payment calculation will increase from 150 percent to 225 percent of the federal poverty line.
- Interest not covered by the borrower’s monthly payment will not be charged to the borrower.
- Married borrowers who file taxes separately will be allowed to exclude their spouse’s income in their monthly payment calculation.
The following elements of the SAVE plan will be implemented on July 1, 2024:
- Monthly loan payments:
- Borrowers with only undergraduate loans will pay five percent of discretionary income.
- Borrowers with only graduate loans will pay 10 percent of discretionary income.
- Borrowers with both undergraduate and graduate loans will pay between five and 10 percent of discretionary income based on a weighted average.
- For borrowers with an original principal balance of $12,000 or less, debt will be forgiven after 10 years; with an additional 12 payments added for each additional $1,000 borrowed above that level, up to a maximum of 20 or 25 years.
- Borrowers will receive IDR credit for certain deferments and forbearances.
- Borrowers will receive credit for payments made prior to consolidation based on a weighted average of the principal balances in the loans being consolidated rather than having the payment clock restart.
- Delinquent borrowers will be automatically enrolled into an IDR plan.
- New enrollments in other IDR plans (e.g., ICR and PAYE) will be phased out.
Check out AccessLex Institute’s comparison of the SAVE and REPAYE plans.
Ready to learn more and formulate your plan? Schedule a free one-on-one call with an Accredited Financial Counselor® through AccessConnex by AccessLexSM, check out our upcoming free webinar events about loan repayment, and explore the resources available on our Ramping Up to Repayment page.