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Understanding the SAVE Plan: A Comprehensive Guide

Welcome to O1ne Mortgage! If you have any mortgage-related needs, feel free to call us at 213-732-3074. In this article, we will explore the new SAVE income-driven repayment plan, which replaces the Department of Education’s REPAYE plan, offering student loan borrowers a more affordable option.

How Does the SAVE Plan Work?

The SAVE plan addresses various aspects of income-driven student loan repayment, including income thresholds, interest accrual, and forgiveness timelines. Some features, like increased income thresholds and interest waivers, are already in effect, while others will begin in July 2024.

1. Reduced Monthly Payments

Borrowers on the SAVE plan pay a percentage of their discretionary income, defined as the difference between household income and 225% of the U.S. poverty guideline. Undergraduate payments are reduced from 10% to 5% of discretionary income, while graduate students continue to pay 10%. Borrowers with both types of loans will pay a weighted average between 5% and 10%. This change can save borrowers upwards of $1,000 annually.

2. Higher Income Limits for $0 Payments

The SAVE plan increases the income level that qualifies for $0 monthly payments, making an additional 1 million low-income borrowers eligible. Single borrowers earning around $15 per hour or $32,800 per year, and families of four earning $67,500 or less, will not have to make payments.

3. Shorter Loan Forgiveness Timeline

Borrowers can earn loan forgiveness in as little as 10 years under the SAVE plan. Those with original principal loan balances of $12,000 or less can receive forgiveness after 120 payments. Each additional $1,000 equates to 12 more payments.

4. Less Interest Accrual

With SAVE, loan balances will not increase due to unpaid interest if borrowers make their minimum payment. For example, if a borrower’s monthly payment is $90 and their loan accrues $150 in interest, the remaining $60 will not be charged as long as the $90 payment is made.

5. Easier Access for Borrowers

The SAVE plan simplifies enrollment and recertification. Borrowers can grant the Department of Education access to their tax returns, eliminating the need to manually provide information. Automatic reenrollment is also an option.

Who Qualifies for the SAVE Plan?

Any former undergraduate or graduate student with eligible federal student loans can enroll in the SAVE plan. Loans in default and federal loans for parents, including direct PLUS loans, do not qualify. Certain loans, such as FFEL and Perkins loans, must be consolidated into a direct consolidation loan to qualify.

How to Sign Up for the SAVE Plan

If you are already enrolled in REPAYE, you will be automatically switched to SAVE. New applicants need to gather necessary information, complete the income-driven repayment plan application on StudentAid.gov, and request the lowest monthly payment.

Is the SAVE Plan Right for Me?

The SAVE plan is ideal for borrowers with loan balances under $20,000, those seeking the lowest monthly payment, and low- to medium-income earners. However, it may not be suitable for borrowers with private student loans, those aiming for rapid debt repayment, or high-income earners.

Other Income-Driven Repayment Plans

Besides SAVE, there are three other income-driven repayment plans:

Income-Based Repayment (IBR)

IBR caps loan payments at 10% or 15% of discretionary income, depending on when the loan was awarded, with forgiveness after 20 or 25 years.

Income-Contingent Repayment (ICR)

ICR requires payments of 20% of discretionary income or the amount on a fixed 12-year repayment plan, with a 25-year repayment period. It is the only plan available for parents with direct parent PLUS loans.

Pay As You Earn (PAYE)

PAYE bases payment amounts on income and family size, but eligibility requirements differ. Borrowers can no longer apply for PAYE after July 1, 2024.

The Bottom Line

The SAVE plan offers lower monthly payments, shorter forgiveness timelines, and higher income thresholds, making it beneficial for many borrowers. However, it may not be the best fit for high earners or those eager to become debt-free quickly.

For any mortgage-related needs, contact O1ne Mortgage at 213-732-3074. We are here to help!

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