Understanding The SAVE Plan For Student Loan Borrowers

Understanding the SAVE Plan
Kevin Wenke

Kevin Wenke

CFP | CLU | Investing | Insurances | Taxes

The SAVE plan is the result of the plan President Biden revealed in 2022 to help people who owe money from student loans, something he promised during his campaign.

The main part of this plan was supposed to cancel $10,000 to $20,000 of student loan debt for some people, but the US Supreme Court did not allow this part to happen.

However, another important part of the plan was to create a new way for people to pay back their loans, based on how much money they make. This plan would make monthly payments smaller, forgive some loans earlier than usual, and help prevent loan balances from growing because of unpaid interest. Even though the Supreme Court decision did not allow for the loan cancellations, this new way of paying back loans was not affected and will go ahead.

In the beginning, we only knew some details about this new plan, and there were a lot of questions about who could use it and how it would work. In January 2023, we got more information, and finally, at the end of June 2023, after the Supreme Court decision, the Department of Education shared all the details about the new plan. They gave it a name too – the Saving on A Valuable Education (SAVE) Plan.

Federal student loan payments, which have been paused for more than 3.5 years, are starting up again after August 31, 2023. This means that the interest will start adding up in September, and people will need to make monthly payments in October. So,  student loan borrowers have work to do in order to get the answers to their questions about the SAVE Plan and how it affects their budgets.

Even though the plan to cancel $10,000 to $20,000 of student loan debt didn’t happen, the SAVE Plan can still save people a lot of money IF they use it correctly. So it’s important to understand how it works!

In this article, I am going to break down the SAVE Plan and help you understand how it works so you can make the best decisions about your unique situation.

The New SAVE Plan Updates and Takes Over from the Current REPAYE Plan

When we first heard about the SAVE Plan, it seemed like it was going to be a new option for people to pay back their student loans, sitting alongside the existing ways to pay, like Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). But now we know that the SAVE Plan is going to replace the REPAYE plan.

If you’re already using the REPAYE plan, you’ll automatically switch to the SAVE Plan before you start paying again in October. And if you’re planning to sign up for the REPAYE plan soon, you’ll also switch to the SAVE Plan later this summer.

The SAVE Plan is kind of like an updated version of the REPAYE plan. It keeps some parts of the REPAYE plan and changes others. One big thing is that anyone with federal student loans can use the SAVE Plan. Some of the other plans only work for loans taken out after a certain date, but the SAVE Plan, like the REPAYE plan, works for all kinds of federal student loans (except Parent PLUS loans), no matter when you took them out.

It’s a bit confusing because sometimes the Department of Education uses the names SAVE Plan and REPAYE Plan like they’re the same thing. But in this article, when we say “SAVE Plan,” we’re talking about the new plan, and when we say “REPAYE,” we’re talking about the old plan.

Smaller Monthly Payments with the SAVE Plan

One of the main things the SAVE Plan does is make your monthly payments smaller. Like the REPAYE plan, the SAVE Plan decides your monthly payments based on how much money you make after covering your basic needs.

Under the old REPAYE plan, you had to pay 10% of this income. But under the SAVE Plan, you’ll only pay 5% of your income for undergraduate loans. For graduate school loans, you’ll still pay 10%. But the SAVE Plan raises the amount you can make before you have to start paying, from 150% of the federal poverty level (the amount a person or family needs to live) to 225%.

This means that basically everyone will have smaller monthly payments under the SAVE Plan than under the REPAYE Plan, unless your payments were already $0 under REPAYE. So if you only have undergraduate loans, your monthly payments under the SAVE Plan will be less than half what they would have been under REPAYE. If you have graduate loans, your payments will still be 10% of your income, but since you can make more before you start paying, your payments will be a bit smaller.

Save Plan Changes For Married Borrowers

A big problem with the old REPAYE Plan was that you had to count your spouse’s income when figuring out your monthly student loan payments. This meant that if your spouse earned a lot of money, you had to pay a lot more towards your student loans, even if your own income wasn’t very high.

The new SAVE Plan changes this. If you’re married and choose to file your taxes separately, you can leave out your spouse’s income when calculating your monthly loan payments. This might mean you end up paying more taxes overall than if you filed your taxes jointly with your spouse. But if it helps to lower your student loan payments significantly, it could still be a good option for you.

But remember, choosing to file your taxes separately from your spouse can be tricky. Some tax credits, like the Child and Dependent Care Credit and credits for college costs, aren’t allowed. You also can’t subtract student loan interest or certain savings bond interest from your taxable income. And both spouses have to choose the same way to subtract expenses from their income: they either have to both use the standard deduction or both list out their expenses one by one. Plus, if you have kids or others depending on you, you’ll have to decide who gets to include them on their tax return. And don’t forget, each state has its own rules about how to file taxes that you’ll need to think about, too.

You’ll need to do some math to see whether filing taxes jointly or separately works better for you. The important thing is that you now have a choice, thanks to the new SAVE Plan. So, if you had chosen another repayment plan in the past because you didn’t want to count your spouse’s income, you might want to think about switching to the new SAVE Plan now.

Save Plan Eliminates Accumulated Interest From NEGATIVE AMORTIZATION.

The SAVE Plan helps borrowers by making sure they don’t get stuck with a lot of extra interest. See, when you make a payment on your loan, it first goes to pay off any interest. Then, the rest goes to the principal – the amount you originally borrowed. If your payment isn’t enough to cover all the interest, the leftover interest gets added to your principal. This is called “negative amortization,” and it means your loan balance keeps growing, even while you’re making payments.

Under the old plan, the government would pay for all the leftover interest for the first three years and half of it after that. But with the SAVE Plan, the government pays for all the leftover interest the whole time.

Here’s why that’s important: when you’re done paying off your loan after 10-25 years, any amount left over is forgiven – meaning you don’t have to pay it. But usually, you’d have to pay taxes on that amount. So, if your loan keeps growing because of negative amortization, you might end up having to pay taxes on more than what you originally borrowed, even though you’ve been making payments for years.

But now, with higher interest rates than we’ve seen in a long time, the SAVE Plan’s help with interest is really important, especially if you’ll probably have some of your loan forgiven.

Now, if you’re going for Public Service Loan Forgiveness, or PSLF – which means you get your loans forgiven tax-free after 10 years of payments while you’re working in a certain kind of job – you might not worry as much about negative amortization. But, it’s still good to have the government help with interest in case you switch to a job that doesn’t qualify for PSLF. Plus, other parts of your finances, like your credit score, might be affected by how big your loan balance is.

More Ways to Get Your Loans Forgiven with the SAVE Plan

Just like the old plans, the SAVE Plan says that after you’ve been making payments for a certain amount of time, the rest of your loan is forgiven, or wiped out. For people only paying back undergraduate loans, that’s 20 years. For people with any graduate loans, it’s 25 years. But the SAVE Plan also has a special rule: if all the loans you’re paying back added up to $12,000 or less at the start, they’re forgiven after just 10 years.

For loan amounts more than $12,000, every extra $1,000 adds 12 months onto your repayment time. This means if your loans were between $12,000 and $21,000 (for undergraduate loans) and $26,000 (for graduate loans), they’ll be forgiven somewhere between 10 and 25 years.

Here’s when different types of loans can be forgiven:

After 20 years:

 – IBR (for new borrowers after July 1, 2014)


– REPAYE (if only paying back undergraduate loans)

– SAVE Plan (if the starting balance for undergraduate loans was more than $21,000, but less for smaller balances)

After 25 years:

– IBR (for borrowers before July 1, 2014)
– REPAYE (if paying back at least 1 graduate loan)
– SAVE Plan (if the starting balance for graduate loans was more than $26,000, but less for smaller balances)

More Months Count Towards Forgiveness

The Department of Education also changed the rules about which months count towards forgiveness. Before, the only months that counted were when you:

– Made a payment under your plan (even if the payment was $0);
– Made a payment under a different plan (like an IDR plan or the standard 10-year plan); or
– Didn’t have to make payments because you were having economic troubles or serving in the Peace Corps.

Now, there are more times that can count towards forgiveness. In addition to the ones above, these also count:

– When you’re getting treatment for cancer;
– When you’re in a rehabilitation training program;
– When you’re unemployed;
– When you’re in the military or just finished active duty;
– When you’re in the national service or the national guard, or in a Department of Defense Student Loan Repayment program; and
– During some other times when you don’t have to make payments, like if you’re in bankruptcy.

For other times when you don’t have to make payments, you can make up the payments within 3 years of when they were due (starting after July 1, 2024) and they’ll still count towards forgiveness.

Also, before, if you consolidated your loans, it reset the clock for when your loans would be forgiven. But now, any payments you made before consolidating your loans can count towards forgiveness. They figure out how many months to count based on how big each loan was and how many payments you made on it before you consolidated.

Other Payment Plans Are Going Away for New Borrowers

The new SAVE Plan has a lot of benefits, so many people thought that it would only be for certain borrowers who really need help. But actually, almost anyone with Federal Direct loans can use the SAVE Plan, no matter when they got their loans. And starting in 2024, it will be harder for new borrowers to use other income-driven repayment plans.

Here’s what’s happening to the other plans: the REPAYE plan is being replaced by the SAVE Plan sometime in 2023; starting July 1, 2024, new borrowers can’t use the PAYE or ICR plans anymore; and while new borrowers can still use the IBR plan, if they’ve made 60 payments on the SAVE Plan after July 1, 2024, they can’t switch to the IBR plan.

After next summer, new borrowers can only choose between the SAVE and IBR plans. If they want to use the PAYE or ICR plans, they have to decide before July 1, 2024.

Choosing Between SAVE and IBR

Even though the number of plans for new borrowers will be smaller starting July 1, 2024, there’s still a choice between the SAVE Plan and the IBR plan. The SAVE Plan has a lot of good things going for it, but there might be some reasons why a borrower would choose the IBR plan instead.

The first reason is if they can’t use the SAVE Plan. Only Direct Loans can use the SAVE Plan. Loans under the old FFEL program have to use the IBR plan, unless the borrower consolidates them into a Direct Consolidation Loan.

The second reason is that sometimes, the IBR plan might mean smaller loan payments than the SAVE Plan. This is because the IBR plan has a cap on how high your payments can be, but the SAVE Plan doesn’t. So if you make a lot of money (or don’t owe a lot of money), the IBR plan might make your payments smaller.

The third reason is that if someone has fallen behind on their loan payments (this is called being in “default”), starting July 1, 2024, they can only use the IBR plan. If they catch up on their payments and make payments on time for at least 3 months, they can then switch to the SAVE Plan. This makes the IBR plan a kind of stepping stone to the SAVE Plan for those who have fallen behind on their loans.

Below are some key highlights of each plan as borrowers compare their current options.

05 Key Highlights Of Income Driven Repayment Plans 1 Decision Tree Financial

Other Important News About Student Loans

There are two more announcements you should know about. They could affect those of you who are getting ready to start making student loan payments again this fall:

1. There’s now an automatic way to update your income and family size every year if you’re on an Income-Driven Repayment (IDR) plan.
2. There will be a one-year “on-ramp” period to help people having a hard time making their payments.

Automatic Updates for Income and Family Size with IRS Authorization

If you’re on an Income-Driven Repayment (IDR) plan, you have to update your income and the number of people in your household every year. This lets the people in charge of your student loans check and adjust how much you have to pay each month. Before, you had to do this all by yourself, which could be a hassle and easy to forget. If you forgot to update this information, you could get kicked off the IDR plan and put onto the standard 10-year repayment plan until you got around to updating it.

But this year, the Department of Education has teamed up with the IRS. This allows you to check a box when you update your information. This lets the Department of Education get your tax return information directly from the IRS. Your updates will then happen automatically each year. You won’t have to remember to do it yourself. You’ll get a reminder every year to update your information manually, but if you forget, you won’t face the same problems as before.

“On-Ramp” Period to Help with Restarting Loan Payments

After not making student loan payments for more than three years, it can be tough to start making them again. The money that would have gone to these payments has likely been used for other expenses. The rising cost of things like housing and fuel over the last couple of years has probably eaten up the extra money you had without the student loan payments.

The people in charge know that it will be a big change to start making payments again. So, they’ve set up a 12-month “on-ramp” period from October 1, 2023, to September 30, 2024. You’ll have to start making loan payments again, and interest will start adding up. But if you miss payments, they won’t count against you. You won’t be seen as delinquent, you won’t be put in default, you won’t be sent to debt collectors, and your missed payments won’t be reported to credit bureaus.

This isn’t the same as pushing back the date when you must start making payments again. But it does give some breathing room for those who will have a hard time fitting the payments back into their budget (especially if they were hoping to have some of their loan forgiven). Remember, the longer you go without making full loan payments during this time, the more you’ll need to pay later to catch up. So, it’s best only to use this option if you really need it and have a plan to make up the missed payments later.

Getting Ready for the New Rules

The first thing you should do is accept that yes – after a lot of back and forth over the years – student loan payments are going to be a part of your life again.

Next, take a moment to understand your current situation and what will happen if you do nothing between now and when the first payment is due in October. Are you on an Income-Driven Repayment (IDR) plan? What were your interest rates and payment amounts before COVID? How much time do you have left until your loans are paid off or forgiven – counting the over three-year freeze as time towards forgiveness? Do you know who is managing your loan now, and do you know how to make payments when they’re due?

After this, you can start to think about possible actions to improve your situation moving forward.

Should You Update Your Income, and When?

Unless you choose to update your income and household information during the repayment pause, the information used to calculate your loan payments probably comes from 2018 or 2019 at the latest. A lot might have changed since then: marriages, divorces, kids, deaths, new jobs, layoffs, and so on.

But even if your situation has changed, you might not need to update your information right away. According to the latest guidelines from the Department of Education, the earliest date you have to update is six months after the end of the loan pause, which would be March 1, 2024. Depending on your update date (usually based on when you started the IDR plan), some people might not need to update until early 2025. If you want to switch to a different IDR plan though, you’ll need to update your income when you apply for the new plan (unless you’re on the REPAYE plan now, because you’ll automatically be switched to the SAVE Plan).

Whether or not you should update your income can depend on a lot of things. Generally, if your income has gone down or your household size has gone up, your monthly payments under an IDR plan will probably go down. But if your income has gone up or your household size has gone down, your payments will probably go up. If updating your information would make your payments go up, it might be a good idea to wait as long as possible. But if updating would lower your monthly payment from what it was before the pause, it might be better to do so sooner rather than later.

Here are some examples:

07 Choosing When To Recertify Income And Household Information For Borrowers On Income Driven Repayment Plans Decision Tree Financial

Changing Your Income or Family Size

If you’ve had a big change in your income or family size that isn’t shown in your most recent tax return (like if you lost your job this year, which wouldn’t be on last year’s tax return), the Department of Education has given a temporary option for you to report your income without needing tax paperwork. This will last until six months after the end of the payment pause, or March 1.

Choosing a Repayment Plan

As we talked about earlier, the new SAVE Plan might be great for a lot of people, but it’s not the best choice for everyone. If you’re on the IBR or PAYE plans and your income has gone up a lot, you might want to stay on those plans because your payments are capped at the standard 10-year payment amount, and the SAVE Plan isn’t. If you think your income will go up a lot in future years, you might want to think about switching to either IBR or PAYE (since PAYE will be closed to new people on July 1, 2024, and IBR will be closed to people who make more than 60 payments to the REPAYE/SAVE plan after July 1, 2024).

On the other hand, if you were on another IDR plan – like if you’re part of a couple who chose IBR so you could exclude your spouse’s income by filing separately – you might want to think about the REPAYE plan since it (and the new SAVE Plan) will now let you leave off your spouse’s income if you file separately.

Should You File Separately?

Before 2020, deciding to file your taxes separately if you were married was a big part of planning for student loans because it let people on the IBR and PAYE repayment plans not count their spouse’s income when figuring out their payment. But during the pandemic and the pause on student loan payments, there wasn’t much reason to file separate returns, especially since doing that would likely have led to higher taxes without the benefit of lower student loan payments. So many couples who used to file separately might have switched to filing jointly, and newly married couples might have just started filing jointly without thinking about student loan plans.

Now might be a good time to think about those decisions and start planning for the 2023 tax year. This might mean figuring out what both joint and separate filing would look like, comparing potential student loan payments with tax amounts, and deciding things like which spouse would claim any dependents and whether it makes more sense for both spouses to itemize or take the standard deduction. Deciding to file separately isn’t something to take lightly because it changes how many tax credits, deductions, and tax brackets are treated. It’s never too early to start planning to make sure it’s really the best decision when you consider both the student loan and tax situations.

While it’s too late to file separately for 2022 (you can only change joint returns to separate ones before the original due date of the return, with no extensions), if you think you would benefit from filing separately and your most recent returns are joint, you might want to avoid updating your income until after filing a 2023 return (as separate) if possible.


After years of guessing about when student loan payments would really start again and, more recently, which parts of the Biden Administration’s student loan relief plan would make it past legal challenges, we finally know what life with student loan payments will look like. Many borrowers are probably disappointed with the Supreme Court’s decision to reject one-time debt forgiveness, but there’s still a reason to be hopeful. With good planning around the new SAVE Plan, borrowers can potentially save more (and maybe a lot more) than the $10,000 that was originally going to be forgiven.

In the end, while student loans are a tough reality for many borrowers – and the complexity of the many different plans and the choices involved can be really overwhelming – you can do a huge favor for yourself by creating a clear plan that makes it easier to start loan payments again. And with payments starting again just a few months away in October, now is the time to act to make sure you can make the transition back into student loan payments as smoothly as possible!

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