How does the SAVE plan work?

President Biden's broad student loan forgiveness plan didn't make it past the Supreme Court. But so far, elements of the Saving on a Valuable Education program (SAVE), a newer income-driven repayment plan, have moved ahead to help some borrowers pay off their student loans, pending legal action.

Here's what the SAVE program for repaying student loans is—and what it isn't.

What is the SAVE plan for student loans?

The SAVE plan is an income-driven repayment plan for borrowers with federal student loans. Just like the other 3 federal income-driven repayment plans, the monthly payments are determined by the borrower's income and family size.

Generally, the lower someone's income and higher their family size, the less they would have to pay on this plan. In fact, some borrowers are entitled to $0 monthly payments if they meet certain income and family size thresholds. The higher someone's income and lower their family size, though, the more they would have to pay on this plan. That means it might not be the best plan for every borrower.

The SAVE student loan program is taking the place of the Revised Pay as You Earn (REPAYE) plan. Neither plan is the same as the one-time broad student loan forgiveness plan that would have forgiven up to $20,000 in federal student loans for qualified borrowers because the Supreme Court struck that down. Still, some borrowers on the SAVE plan might have a chance at reaching forgiveness.

How much would my student loan payments be on the SAVE plan?

The monthly payment is determined by your discretionary income, or the difference between your adjusted gross income (AGI) and 225% of the US Department of Health and Human Services Poverty Guidelines for your family size. So if you live in one of the 48 contiguous states and earn below 225% of the poverty guideline for your family size—$33,885 for a single borrower, or roughly $16 an hour, or $70,200 for a family of 4—your monthly payments are $0.¹ If your income rises above those thresholds in the future and your family size stays the same, you would owe a monthly payment. That's because your monthly payment gets recalculated each year.

For October 2023 through June 2024, everyone on the SAVE plan earning more than the above owe monthly payments of 10% of their discretionary income.²

Prior to ongoing legal challenges, the SAVE plan was scheduled to go into full effect in July 2024. Borrowers with undergraduate loans will still have their payments halved, to 5% of their income above 225% of the poverty line. And borrowers with both undergrad and graduate loans will pay a weighted average between 5% and 10% of their discretionary income, with the original principal balances of their loans factored in.³ Those with only graduate loans will continue monthly payments of 10% of their discretionary income.

Does the SAVE plan provide student loan forgiveness?

Before the current legal challenges, borrowers who started out with principal balances of $12,000 or less were going to have their remaining balance forgiven after 10 years of qualifying payments, beginning in July 2024.⁴ Further loan cancellation is on hold for now.

What about borrowers who took out more in loans? Before the legal challenges, for every extra $1,000 borrowed, borrowers had to make another year of qualifying payments to reach forgiveness, with a max of 20 years of qualifying payments for undergraduate loans and 25 years for graduate loans.⁵ For example, if you took out $16,000, you might have been eligible to have your balance canceled after 14 years of qualifying payments. If you took out $40,000 in undergraduate loans, you might have been eligible to have your balance forgiven after 20 years of qualifying payments.

Qualifying payments you made before this plan could have counted toward your total required years of payments. If you consolidated multiple loans together, you would have received credit for qualifying payments made pre-consolidation based on a weighted average of the loans' principal balances. But some SAVE plan feature changes are up in the air until court cases play out.

SAVE plan vs. REPAYE plan: How are these student loan repayment programs different?

There are several differences between the SAVE plan and REPAYE plan.

• Discretionary income max: REPAYE monthly payments were 10% of discretionary income for all loans, compared to 5% for undergraduate loans on the SAVE plan.
• Forgiveness threshold: The minimum number of years for anyone on the REPAYE plan to hit forgiveness was 20 years, and 25 years for graduate loans. With SAVE, those with low starting balances might be eligible to have their loans canceled after 10 years of payments. TBD on whether legal challenges allow this lower threshold for cancellation to go through. 
• Interest's effect on payments: Under the SAVE plan, interest that a borrower's monthly payment doesn't cover won't increase the loan balance. So if your monthly payment is set at $150, but your loan would accrue more than $150 worth of interest, your balance won't rise despite the fact that you're not paying this extra interest.
• Income thresholds: The amount of income considered discretionary decreased with SAVE. Your monthly payment amount used to be calculated on income that was above 150% of the federal poverty guidelines under REPAYE. Under SAVE, your monthly payment is calculated on income that's beyond 225% of the federal poverty guidelines. Monthly payment calculations for SAVE don't factor in a spouse's income for borrowers who are married filing taxes separately. Spouses don't count toward family size for calculating payments either.⁶

Who's eligible for the SAVE plan for student loans?

Any former student with federal loans, regardless of income, may enroll in the SAVE plan, even if they've previously consolidated their federal loans, and even as legal challenges play out. If someone has only private loans, they can't enroll in the SAVE plan. If you were already enrolled in the REPAYE plan, you would have been automatically enrolled in the SAVE plan by October 2023.

Potential advantages of the SAVE plan for student loans

• Lower monthly payments if you qualify: If your income is low for your family size, your monthly payments could be low or even $0.
• Lower undergraduate loan payments compared to other payment plans: Payments for those with undergraduate loans are limited to 5% of your discretionary income, which is a lower percentage than many other student loan payment plans.
• Potential loan forgiveness: If the forgiveness provision of the fully implemented SAVE plan can pass legal challenges, you could possibly have the balance of your loan discharged in as little as 10 years if you borrowed $12,000 or less.
• Nonincreasing loan balances: Loan balances don't increase if your monthly payment is less than the amount of interest your loan accrues.

Potential disadvantages of the SAVE plan for student loans

• Potential increased repayment timeframe: Enrolling in the SAVE plan could extend your repayment timeframe. While most repayment plans wrap up in about 10 years, SAVE could take 20 years for many undergraduate borrowers—and 25 years for those with graduate loans. A graduate student who finishes school at age 26 could still be paying student loans until they're 51.
• Loan balances might not decrease: Even though loan balances don't increase if your monthly payment is less than the amount of interest your loan accrues, your loan balance might not decrease either. For example, if you took out $37,000 in loans, you could be paying $100 a month for 20 years (or $24,000) and not see your loan balance drop much, if at all. This could feel demotivating for some.
• Potential tax liabilities: If you qualify for forgiveness in 2026 or later, you might be on the hook for paying taxes on the canceled debt. Taxpayers get a pass on paying federal taxes on forgiveness through 2025, though not necessarily state taxes, but then it's undecided. At that point, it's possible that the canceled portion of your loan could be taxable at the federal and state level. Keep this in mind and consult with a tax professional before enrolling in the SAVE program—or any student loan repayment plan that offers forgiveness.
• Other repayment plans might end: It's possible other existing repayment plans could disappear if few people stay enrolled in them, now that SAVE has become an option. Those other plans might benefit you more than SAVE would.
• Other repayment plans may change: There's always the possibility that SAVE and other existing repayment plans could undergo more changes in the future, as we're already seeing with summer 2024 court cases.

Is the SAVE plan the best repayment option for me?

It depends. Lower-income borrowers and those who took out a small amount of only undergraduate loans might have the lowest monthly payments and the quickest path to possible forgiveness. Other groups will have higher monthly payments and need to make more years of payments to potentially be eligible to have their balances canceled.

No matter your circumstances, it's a good idea to use a student loan calculator to see some of the options available and how they apply to your situation. Consider whether you want to prioritize lower monthly payments, which could be important if you're tight on cash now, or less money spent overall, if there's room in your budget for higher monthly payments now. Higher monthly payments could mean less total money spent on loans, depending on the plan details.

How to apply for the SAVE plan

Borrowers who were enrolled in the REPAYE plan were automatically moved to the SAVE plan by the time federal student loan payments resumed in October. If you were in any other repayment plan, income-driven or otherwise, you would need to apply to enroll in the SAVE plan. Before you do, get more info about the SAVE repayment plan. If you'd like to apply, you'll need to complete this form to submit to your servicer until Studentaid.gov makes online applications available again.

If you're already enrolled in the SAVE plan, sit tight. Those with only undergraduate loans should see their payments halved, but the fate of forgiveness for SAVE plan borrowers is still being decided.