Tax Tip #157

The SAVE plan is an income-driven repayment (IDR) plan that calculates payments based on a borrower’s income and family size—not their loan balance– and forgives remaining balances after a certain number of years. The SAVE plan will prevent balances from growing because of unpaid interest. Borrowers can sign up at Studen­tAid.gov/save

• Borrowers with undergraduate loans will have their payments reduced from 10% to 5% of their discretionary income. Those who have undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income based upon the original principal balances of their loans. 

• Bring many borrowers’ loan payments to $0 per month. A borrower’s monthly payment amount is based on their discretionary income—defined under the SAVE plan as the difference between their adjusted gross income (AGI) and 225% of the U.S. Department of Health and Human Services Poverty Guideline amount for their family size. This means a single borrower who makes about $15 an hour will not have to make any monthly payments. Borrowers earning above that amount would save around $1,000 a year on their payments compared to other IDR plans. 

• Ensure that borrowers never see their balance grow as long as they keep up with their required payments. The Department of Education will stop charging any monthly interest not covered by the borrowers payment on the SAVE plan. As a result, borrows who pay what they owe on this plan will no longer see their loans grow due to un¬paid interest. For example, if a borrower has $50 in interest that accumulates each month and their payment is $30 per month under the new SAVE plan, the remaining $20 would not be charged as long as they make their $30 monthly payment. 

• Provide early forgiveness for low-balance borrowers. IDR plans require all borrowers, even those who only attended school for a single term, to repay their loans for at least 20 or 25 years before receiving forgiveness of any outstanding balance. Under the SAVE plan, borrowers whose original principal balances were $12,000 or less will receive forgiveness after 120 payments (10 years). For each additional $1,000 borrowed above that level, the plan adds and additional 12 payments (1 year of payments) for up to a maximum of 20 or 25 years. For example, if a borrower’s original principal balance is $14,000, they will see forgiveness after 12 years. Payments made previ¬ously (before 2024) and those made going forward will count toward these maximum forgiveness timeframes. 

Borrowers who are already on the REPAYE (Revised Pay-As-You Earn) plan will be automatically enrolled in the SAVE plan and see their payments automatically adjust with no action on their part.