The Saving on a Valuable Education (SAVE) Plan is an income-driven student debt repayment plan introduced by the Biden administration. It replaced a similar plan called REPAYE. The SAVE Plan offers more generous terms than other student loan payment plans. It raises the minimum applicable income and helps cover interest, which can accumulate quickly under other versions of income-based repayment. The goal of this program is to help reduce the overall burden of student debt.
A financial advisor can help you create a financial plan designed to help you pay down student loan debt.
Income-driven repayment is a form of student debt management based on your earnings. The Department of Education offers these programs for borrowers who hold loans processed through or offered by the federal government. The Department of Education offers four income-driven repayment plans:
The Saving on a Valuable Education Plan is the newest form of income-driven repayment.
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The Saving on a Valuable Education Plan is the newest form of income-driven repayment. It took effect in August 2023 and replaced the former Revised Pay As You Earn (REPAYE) plan.
The SAVE Plan has two goals:
Reduce monthly payments
Reduce the impact of interest rates for graduates
If you meet the requirements of this program, your principal will be entirely forgiven after 10, 20 or 25 years of repayment depending on the size of your loan.
Under the SAVE Plan, your income is exempted from student loan repayment up to 225% of the poverty line. This is an increase from 150% under REPAYE.
For example, in 2024, the poverty line for a single individual is an adjust gross income (AGI) of $15,060. Since most households take the standard deduction, $14,600 for an individual in 2024, a representative individual would meet the poverty line at approximately $29,060 in pre-tax earnings. So, under the SAVE plan, this graduate would owe $0 in student loan payments at:
An AGI of $33,885 per year ($15,060 *225%)
A pre-tax income of $48,485 ($15,060 * 225% + $14,600)
For individuals who owe money under SAVE, monthly payments are based on discretionary income. This is defined as the difference between your AGI and 225% of the poverty line for your household size.
For example, as noted above, an individual’s student loan exemption would begin at an AGI of $33,885. If they had an AGI of $50,000, their discretionary income would be $16,115.
This effectively means that a household’s student loan payments apply only to their income dollars above the 225% poverty line cap. Since the federal poverty guidelines are based on household size, the discretionary income cap increases with family size.
For most eligible loans, payments are set at 5% (for undergraduate loans), 10% (for graduate school loans) or a weighted average (for both undergraduate and graduate loans) of your discretionary income. For example, in our case above, the individual would owe about $134 per month ($16,115 * .1 = $1,611 / 12 = $134).
Most income-driven repayment plans do not fully address interest capitalization. This means that if your income reduces your payments below the loan’s monthly interest (in the case of high-principal, high-interest student loan debt), the loan can grow even while you make full payments.
The SAVE Plan eliminates this issue. When you make a full payment under a SAVE Plan, any remaining interest for that month is eliminated. For example, say you owe $1,000 of interest per month on eligible loans. This could be a standard law or medical school graduate carrying $150,000 of debt at 8% interest. If you pay only $800 per month, the remaining $200 will be eliminated.
The downside is that, if your payments are less than the loan’s interest, you will not reduce the principal. You will need to depend on eventual forgiveness to eliminate this debt.
For qualifying students, the SAVE Plan is probably the most effective plan currently on offer. It has largely improved upon the existing format of REPAYE, raising the income cap and expanding interest coverage.
Any graduate holding a qualifying loan can be eligible for SAVE. The following loans either qualify or can qualify if you consolidate them into a direct loan:
Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS loans to graduate students
Direct Consolidation Loans not repaid to parents
Subsidized Federal Stafford Loans
Unsubsidized Federal Stafford Loans
FFEL Plus Loans to graduate students
FFEL Consolidation Loans
Federal Perkins Loans
No loans in default are eligible for SAVE. If your loans are in default, you can use the Fresh Start program to bring your loans current.
At between 5% and 10% of income, SAVE’s repayment terms are more generous than other income-driven repayment plans, which typically set repayment at 10%, 15% or 20% depending on your circumstances. And other plans, such as IBR and ICR, typically only offer forgiveness after 20 years of repayment or more.
In addition, SAVE exempts more income than the Department of Education’s other plans. While all income-driven repayment plans are based on discretionary income, defined as the difference between AGI and a percentage of the federal poverty line, the SAVE plan sets more generous terms. Under IBR and PAYE, only the first 150% of the poverty line is exempted. And ICR only exempts income up to 100% of the poverty line.
For most borrowers, SAVE will offer better terms than other income-driven repayment plans. In fact, one analysis by Student Loan Planner found that under every standard profile, the SAVE Plan offered terms at least as good as other options.
A graduate reviews the Saving on a Valuable Education Plan.
The SAVE plan is a relatively new income-driven repayment plan to help graduates manage their student loans. For most borrowers, it offers the most generous terms of any income-driven repayment plan.
Don’t get caught by surprise. For many graduates, student loan payments are the equivalent to a monthly mortgage, both in scope and duration. So make sure you understand what you owe, what you have to pay and how you can get that debt paid off quick as you can.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
