Have you taken out student loans? Are you aware of the options for repayment plans?

In July 2023, the Biden administration unveiled a new income-based student loan repayment plan: Saving on a Valuable Education (SAVE). The SAVE plan will replace other Income Driven Repayment (IDR) plans like the Revised Pay As You Earn (REPAYE) program. 

The new plan will still use annual income and family size to calculate monthly payments, but the Department of Education estimates that the average borrower will save about $1,000 on payments annually. These changes will take effect in phases over the next year with some changes starting before October, when student loan payments are estimated to begin again. 

Before applying for this new loan repayment plan, here are a few changes to consider.

Amount of Income Protected 

Existing repayment plans protect a certain percentage of borrowers’ income — usually 100 to 150 percent of the federal poverty limit, which is currently $30,000 for a family of four and $14,580 for one person. The SAVE plan will increase this to 225 percent, which means monthly payments will be based on income above 225 percent. This means that more borrowers will have a $0 monthly payment because more of a borrower’s income will be protected under the SAVE plan. Single borrowers making less than $32,000 a year will qualify for $0 monthly payments, and most borrowers will see their monthly payments decrease compared to other IDR plans.

Percentage of Income for Monthly Payments

Current repayment plans set the monthly payment for borrowers based on their Adjusted Gross Income (AGI), or the amount a borrower makes beyond protected income. Most of these plans use 10 to 20 percent of a borrower’s AGI to determine their monthly payments, but the SAVE plan will reduce this to 5 percent for undergraduate loans and 10 percent for graduate loans. 

Stopping Negative Amortization

Negative amortization is when your total loan balance increases even when you are making monthly payments because the monthly payment is not enough to cover the change in interest. The SAVE plan will stop a borrower’s loan from increasing by forgiving any interest that is higher than the monthly payment. For example, if interest on a loan was $100 in a month, but a borrower’s monthly payment was $40, the remaining $60 would be forgiven. 

Loan Forgiveness

Undergraduate loans under $12,000 will be forgiven after 10 years of payments, even if the borrower qualifies for monthly payments of $0. For each $1,000 above $12,000, an extra year is added before the loan will be forgiven.

Things to Consider

Several of the most significant and impactful changes will not happen until July 2024, much later than October, when student loan payments will resume. Although the SAVE plan has a stronger legal basis than Biden’s original plan for student loan forgiveness, the plan will likely face some of the legal pushback that Biden’s original student loan forgiveness plan experienced. 

While the SAVE plan will provide some much needed relief and flexibility for thousands of student borrowers, it does not provide the student loan forgiveness Biden campaigned on in 2020.

It is important to compare and consider some of the older IDR plans before committing to the SAVE plan because borrowers might not be able to switch to the older plans once they join.

How to Apply

There is no official application for the SAVE plan yet, but there is a beta application available through the existing IDR application on the Department of Education’s website at https://studentaid.gov/idr/. The beta application will be available on and off during the beta testing period.

If the beta application is not working, you can enroll in the REPAYE program since all REPAYE borrowers will be automatically enrolled in the SAVE program once the changes go into effect.