By Charlene Crowell
Trice Edney Wire
FAST FACTS
- The SAVE Plan is an IDR plan, so it bases your monthly payment on your income and family size.
- The SAVE Plan lowers payments for almost all people compared to other IDR plans because your payments are based on a smaller portion of your adjusted gross income (AGI).
- The SAVE Plan has an interest benefit: If you make your full monthly payment, but it is not enough to cover the accrued monthly interest, the government covers the rest of the interest that accrued that month. This means that the SAVE Plan prevents your balance from growing due to unpaid interest.
- More elements of SAVE will go into effect in summer 2024 and will lower payments even more for borrowers with undergraduate loans.
Nearly 5.5 million borrowers have applied for the newest federal program for student loan debt relief since it was announced about three months ago. Nearly 3 million borrowers who enrolled in the Saving on a Valuable Education (SAVE) Plan completely eliminated their monthly loan payments.
“Under President Biden, the Department created the SAVE Plan so that young people and working families can climb the economic ladder without unaffordable student loan debt weighing them down,” said U.S. Secretary of Education Miguel Cardona. “I’m thrilled to see that in less than three months, nearly 5.5 million Americans in every community across the country are taking advantage of the SAVE Plan’s many benefits, from lower monthly payments to protection from runaway student loan interest.”
The bulk of these loan savings benefit students with the greatest financial need – those eligible for federal Pell grants – including Black, Latino, Native American and Alaskan Native borrowers. Most SAVE borrowers will see their lifetime loan repayments cut in half.
As long as SAVE participants maintain their regular payments, their loan balances will go down due to the Education Department no longer charging interest.
The SAVE Plan is the newest income-driven repayment (IDR) plan. Like other IDR plans, the SAVE Plan calculates your monthly payment amount based on your income and family size. In addition, the SAVE Plan has unique benefits that will lower payments for many borrowers.
The SAVE Plan replaced the Revised Pay As You Earn (REPAYE) Plan. Borrowers on the REPAYE Plan automatically get the benefits of the new SAVE Plan
The SAVE program creates lower payment rates for both undergraduate and graduate loans by increasing the amount of income exemption from 150% to 225% of the poverty line. Your monthly payment amount is based on your discretionary income—the difference between your adjusted gross income (AGI) and 225% of the Poverty Guidelines.
In addition, effective summer 2024, the SAVE Plan decreases the amount of your payments from 10% to 5% of income above 225% of the poverty line. Borrowers who incurred both undergraduate and graduate loans, under SAFE, will pay a weighted average of the original principal balances on their loans. The payment range for the combination borrowers is from 5-10 percent of income.
The $0 payment remains available for borrowers who earn less than $32,800 per year or those in a family of four making less than $67,000. With the increased income exemption to 225% of above the poverty line, borrowers earning more than these annual amounts also benefit with an estimated savings of $102 a month ($1,224 a year), compared to earlier income-driven repayment programs.
Consumer advocates are emphasizing the program’s targeted reach.
For example, this October, the Urban Institute, a nonpartisan research and policy organization noted, “Payment reductions and larger loan forgiveness benefits under the SAVE plan will occur broadly across racial and ethnic groups but are skewed toward programs enrolling more Black and Hispanic students.”
Even earlier this year, the Center for Responsible Lending (CRL) stressed to the House Subcommittee on Higher Education and Workforce Development how the escalating costs of higher education surpassed the financial capabilities of many Americans.
“Education was sold to working-class families as the great equalizer, giving unlimited opportunity to those who would seize it” wrote CRL. “Yet, according to the Federal Reserve, every $1,000 increase in student loan debt lowers the national homeownership rate by about 1.8 percentage points for public four-year college students.”
“Between 2009 and 2022, median household income grew from $63,011 to $70,784, or about 12%,” CRL continued. “Comparatively, the average student loan debt grew nearly 32%, from $27,874 to $36,096, during that period.”
Student loan borrowers who have financially struggled to keep up with monthly payments may still enroll online at: https://studentaid.gov/announcements-events/save-plan.
“The SAVE Plan will significantly cut monthly bills for most borrowers, reduce loan default, and ensure that student loans don’t need to come before life necessities,” said Under Secretary James Kvaal. “With nearly 5.5 million people enrolled after only two months, it’s clear how much borrowers need a plan like SAVE. President Biden and our administration remain committed to giving borrowers breathing room on their monthly payments and ensuring student loans aren’t a barrier to opportunity.”
