The Education Department recently introduced the SAVE IDR plan, which stands for „Saving on a Valuable Education,“ as a replacement for the previous REPAYE plan. This new income-driven repayment plan aims to cap borrowers‘ monthly federal student loan bills at a portion of their income and forgive remaining debt after a set number of payments. With 8 million borrowers enrolled in the SAVE plan, it has become the most popular income-driven repayment option, with 4.5 million borrowers qualifying for $0 payments based on their earnings.
However, the rollout of the SAVE plan hit a roadblock when lawsuits filed by Republican-led states forced the Education Department to temporarily suspend the program in July 2024. As a result, student loan servicers have placed SAVE borrowers in an interest-free administrative forbearance while the legal situation is being resolved. This means that these 8 million borrowers won’t receive credit towards IDR or PSLF forgiveness during this forbearance period, which could last for months.
Before the legal issues arose, the SAVE plan offered significant benefits to borrowers. For instance, borrowers earning less than about $32,800 individually or less than $67,500 for a family of four would see $0 monthly bills. Most other borrowers would have their payments reduced by at least half, with the most significant benefits going to those with undergraduate loans only. Additionally, students who borrowed $12,000 or less would have their remaining balances forgiven after 10 years of payments, instead of the typical 20 to 25 years.
Despite the legal challenges, approximately 360,000 borrowers enrolled in SAVE who took out $12,000 or less for college and have been in repayment for at least 10 years have been approved for loan forgiveness, totaling about $4.8 billion in relief. The government is posting updates related to the SAVE plan lawsuits on ed.gov/SAVE to keep borrowers informed about the situation.
One of the key differences between the SAVE plan and other student loan repayment options is the way income is calculated. Under the SAVE plan, the threshold for discretionary income is set at 225% of the federal poverty guideline, significantly reducing the amount of income considered for repayment calculations. This results in lower monthly payments for borrowers compared to other IDR plans.
Another significant feature of the SAVE plan is the accelerated forgiveness timeline. Borrowers with principal loan balances of $12,000 or less for undergraduate or graduate study can have their remaining balances forgiven after 10 years of payments. This is a much shorter timeframe compared to the 20 to 25 years required by other IDR plans.
Additionally, the SAVE plan covers any unpaid interest each month, preventing it from accruing as long as borrowers make their monthly payments. This is a significant benefit compared to other plans where unpaid interest can accumulate over time.
To qualify for the SAVE plan, most borrowers with federal student loans are eligible, with no income limit to qualify. However, certain types of federal student loans, such as Perkins or FFELP loans, may need to be consolidated before enrolling in the SAVE plan. Generally, the SAVE plan is best suited for borrowers who earn less relative to the amount of student debt they owe.
Applying for the SAVE plan typically involves submitting an application on studentaid.gov/idr, but due to the lawsuits, the online system is currently down. Borrowers must now send a paper IDR application to their servicer, but processing times may be delayed due to the legal situation. Borrowers who were previously enrolled in the REPAYE plan were automatically transitioned to the SAVE plan in the fall of 2023.
The SAVE plan has had a phased rollout, with certain benefits becoming available to borrowers before repayment resumed after the pandemic pause in October 2023. Forgiveness for certain borrowers began rolling out in February 2024, with the rest of the plan scheduled to launch by July 2024 before the lawsuits intervened. The Education Department is also working on other changes to the general IDR plan process and application, including integrating with the IRS system, automatic IDR recertification, and no interest capitalization if borrowers leave the IDR plan.
In conclusion, while the SAVE plan offers significant benefits to borrowers, the current legal challenges have put a temporary halt to its processing. Borrowers enrolled in the program are advised to stay informed about updates on the situation and be prepared for potential delays in processing their applications.