By Luke Babner and Joel Bleskey

With the school year in full swing, so is the official launch of what is said to be “the most affordable repayment plan ever created.”

The SAVE plan, an updated version of the REPAYE plan, helps borrowers reduce their monthly loan payments and, in some circumstances, have their loans forgiven. This program is an income-driven payment plan that calculates payments based on income and family size rather than loan balance. Once you are enrolled in this plan, after a certain number of years/payments, your outstanding balance on the loan is eligible to be forgiven.

What is an income-driven repayment plan and how does SAVE work?

  • Payments are based on a percentage of discretionary income
    • This percentage has decreased from 10% of discretionary income to 5% under the new rule starting in July 2024.
      • Discretionary income is calculated by taking the difference between the borrower’s adjusted gross income and 225% of the federal poverty level (FPL).
      • Based on this definition, a family of 4 in 2023 with an annual AGI of $67,500 would have no payments for direct student loans.
  • Balances do not accrue interest starting now
    • If borrowers are paying what they owe, the additional interest that would be accrued is not charged to their account.
      • For example, if a borrower has $50 in interest that accumulates each month and their payment is $30 per month under the new SAVE plan, the remaining $20 would not be charged as long as they make their $30 monthly payment.”
  • SAVE provides early forgiveness for low-balance borrowers starting in July 2024
    • If a borrower has an original principal balance of $12,000 or less, they are eligible to have their direct loans forgiven after 120 payments instead of the old rules where payments had to be made for 20-25 years before forgiveness.
    • This payment/balance structure is indexed upwards, so each additional $1,000 in original principle will add 12 months of payments.
    • For example, if someone’s original balance is $16,000, they would have to make 168 payments before forgiveness.
  • Borrowers can sign up for the SAVE plan using this link: gov/SAVE

What else is available to federal loan borrowers?

SAVE will be able to help borrowers, and applying is easy (see link above), but there’s no guarantee of qualification for loan forgiveness. Fortunately, there are other options for borrowers to consider if they are looking for help with their student loans. One of these options is Public Service Loan Forgiveness. Borrowers may be eligible if they fall into one of the following categories.

Occupations or situations that may qualify borrowers for Federal Loan Forgiveness.

  • Teachers
  • Government Employees
  • Non-Profit Employees
  • Nurses, Doctors, and Other Medical Professionals
  • Individuals with Permanent Disabilities
  • If you are repaying loans under an Income-Driven Repayment Plan (Such as SAVE)
  • If your school closed
  • If you were misled by your school
  • If you declare bankruptcy

This is not a comprehensive list, and there could be many other eligible situations, but it may get you thinking about your personal situation and how these plans could help.

Update on mass student loan forgiveness.

One of the hot topics earlier this year was a flat $10,000 forgiveness for all borrowers below a certain income level. The Supreme Court recently blocked it; however, more work is being done to enable widespread forgiveness. The newest proposal is based on “The Higher Education Act of 1965,” and the road to debt cancelation looks much longer and more complicated. Only time will tell how likely this is to become a reality.

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