New Repayment Plan for Federal Student Loans

The Dept. of Education has introduced a beta application for the new “Saving on a Valuable Education” repayment plan, designed to replace the Revised Pay as You Earn plan for federal student loan borrowers. This new income-driven repayment strategy strives to offer borrowers the most financially manageable monthly payments.

Comparable to the REPAYE plan, the SAVE plan places a cap on monthly payments at 10% of one’s discretionary income. Starting from next summer, payments within the SAVE plan will be reduced to 5% of discretionary income, calculated as income above 225% of the federal poverty line — around $32,800 annually for individuals in 2023.

Those with adjusted gross income at or below this threshold will be eligible for $0 monthly payments, benefiting individuals earning roughly $15 per hour or less, as well as families of four making $67,500 or less.

Enrollment for the SAVE plan is open on the Federal Student Aid website for borrowers with federal direct unsubsidized or subsidized, consolidated, or grad PLUS loans. Applications will be processed before payments recommence in October, according to the Department of Education. Existing REPAYE plan participants will be automatically transferred to the SAVE plan.

Remarkably, qualifying individuals under the SAVE plan can truly benefit from not making payments, particularly a relief for low-income borrowers who have been accustomed to non-payment during pandemic forbearance.

Even when making $0 monthly payments, progress is made on loans, as these payments count toward the requirements for loan forgiveness through Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF). All IDR plan participants can potentially have their remaining balances forgiven after 20 or 25 years of payments, while those in public service roles can qualify for PSLF after 10 years or 120 monthly payments.

Traditionally, annual income recertification was mandatory for IDR plan participants, but the new SAVE application allows for automatic recertification via tax information consent.

Even if not eligible for $0 monthly payments, the SAVE plan can lead to at least $1,000 in annual savings compared to other IDR plans, while also preventing excess interest charges if monthly payment commitments are met. In instances where, for instance, a monthly payment is $30 and loan interest accrues $50, borrowers won’t face an additional $20 charge, per the Federal Student Aid website.

Noumaan Faiz, (he/him) is a journalist and entertainer from Hayward, CA who covers culture and entertainment.

Edited by Nykeya Woods