There has been a lot of hype around the New SAVE Plan being offered by the Department of Education, but the real question is... will it save you money?
If you've been following my posts, you probably already know my answer to this question and that is... it depends.
Because the federal student loan program is so complex, there is never a one-size-fits-all answer to any student loan question.
Let's start off by discussing what the new SAVE Plan is. First off, the acronym stands for Saving on A Valuable Education. There are many benefits to this new repayment plan, including:
☑ Changing the payment calculation of discretionary income from 150% to 225% of the poverty line. This means less of your income is being factored into how much you can afford to repay, thereby lowering the monthly payment amount.
☑ Fixing the negative amortization problem. In the past, if your monthly income-driven repayment amount was less than the interest owed on your student loan, your monthly balance increased. Under the new SAVE plan, any remaining interest for both subsidized and unsubsidized loans will be eliminated after a scheduled payment is made.
☑ Excludes spousal income for borrowers who are married but file separately. (Disclaimer: always check with a tax advisor as filing separately from your spouse can cause you to lose other tax benefits you may be entitled to)
☑ Changes to forgiveness timeline from 20 or 25 years on most other Income Driven Repayment plans to 10 - 25 years depending on the original amount borrowed. This will shorten the forgiveness period for those who have smaller student loan balances.
Undergraduate borrowers will also see payments lowered again in July 2024, when the repayment calculation changes again from 10% discretionary income to 5% discretionary income. Graduate borrowers may see a decrease if they also still have undergraduate loans with a weighted average repayment calculation.
While the new SAVE plan will be the best option for many borrowers, it will not be the best option for everyone. Who should not consider switching to the new SAVE plan?
☑ Borrowers on other IDR plans that have had a significant increase in income since their last recertification period (2019/2020). If you have a lower payment on your current IDR plan than you would on the new SAVE plan, it may be best to wait until your next recertification period to switch.
☑ Borrowers who are enrolled in the PAYE (Pay As You Earn) IDR plan with graduate loans that are close to forgiveness after the one-time IDR adjustment takes place in 2024.
If you feel that the SAVE Plan is right for you, what do you need to do next?
First, please make sure your student loans are set up correctly to take advantage of the one-time IDR adjustment before the end of the year. If you don't know what the IDR adjustment is, please search previous posts to learn more.
After that, if you are already enrolled in the REPAYE (Revised Pay As You Earn) plan, you don't need to do anything. SAVE is replacing REPAYE.
If you are enrolled in any other repayment plan, you can switch to the SAVE Plan by logging in to your account at studentaid.gov
If you are unsure what payment plan is best for you, please schedule your free discovery call with Renee today!
Student Loan ForgivenessStudent Loans
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