Early Forgiveness Under SAVE: Understanding Loan Size Limits and Other Fine Print

One of the standout features of the new SAVE plan is its accelerated loan forgiveness. Borrowers with balances up to $12,000 may qualify for forgiveness in just 10 years.

While $12,000 of forgiveness after 10 years sounds like an easy concept, there has been a lot of confusion. For example, many readers have written asking if the forgiveness is per loan or based on the total balance. I’ve even received some reports from readers who were given inaccurate information from their loan servicer.

This post should cover all of the fine print. Where the Department of Education hasn’t been clear, I’ve linked to the appropriate section of the Code of Federal Regulations. If you’ve got questions about early forgiveness under SAVE and this article doesn’t cover it, please leave a comment at the bottom of this article.

Determining Your Repayment Term

The path to forgiveness under the SAVE Plan is tied to your “repayment term.” This term is essentially the amount of time you need to be in repayment before qualifying for forgiveness. It varies based on the original principal balance of your loans.

Notably, the current loan balance does not influence the length of the repayment term. If your balance has grown due to interest, you won’t be penalized with a longer repayment length.

Three Rules for Repayment Term Calculations

• For Small Loan Amounts: The shortest term is 10 years for those who borrowed $12,000 or less.
• Incremental Increase: For every additional $1,000 borrowed above $12,000, the repayment term extends by a year. For example, a balance of $14,900 would have a repayment term of 13 years.
• Caps on Repayment Terms: The maximum term is capped at 20 years for purely undergraduate loans and 25 years for a mix of graduate and undergraduate loans, regardless of the borrowed amount.

Is the forgiveness timeline based on individual loan balances or the total amount borrowed?

To answer this question, let’s look at a simple example. Suppose a borrower has a total of six loans. Each loan was for $5,000. Thus, the borrower has a total original balance of $30,000.

Does forgiveness come after 10 years because each loan is less than $12,000, or does it take the full 20 to 25 years because the total balance is $30,000?

Sadly, the answer is that forgiveness will take 20 to 25 years.

The Department of Education hasn’t been very clear about this particular question. The StudentAid.gov article explaining early forgiveness leaves the answer to this question somewhat ambiguous.

For a more definitive answer, we must turn to the Code of Federal Regulations. For those unfamiliar, the Code of Federal Regulations is the source for the rules that the Department of Education and the loan servicers must follow.

34 C.F.R. § 685.209(k)(3) states that early forgiveness is based on “the borrower’s total original principal balance on all loans.”

The language is quite clear. If your total original balance exceeds $12,000, you won’t get early SAVE forgiveness after 10 years.

Loan Types and Eligibility

Even the phrase total original balance can get a little tricky in terms of determining the forgiveness timeline. For example, consolidated loans make things a bit more complicated.

Borrowers with unconsolidated loans are the easy ones. The Department of Education will look at the total original balance of each of your loans when determining the forgiveness timeline.

For those who have consolidated their loans, the Department of Education will look at the original balance of the loans that were included in the consolidated loan.

There are also a couple of other special circumstances:

• FFEL Program Loans: These are included in the timeline math because they can be consolidated into a federal direct loan to get eligibility for SAVE.
• Parent PLUS Loans: These do not impact the forgiveness timeline. However, if the Parent PLUS loan is consolidated into a federal direct loan, it will impact the timeline, according to the Department of Education.

Parent PLUS Loans and Early SAVE Forgiveness Example

As many Parent PLUS borrowers know, Parent PLUS loans are not eligible for the SAVE repayment plan. Thus, they do not qualify for early SAVE forgiveness.

This nugget of information is good news for borrowers who have a mix of both. Suppose you borrowed a total of $10,000 for your education and then borrowed Parent PLUS loans to help pay for your child’s education. In that scenario, you would be eligible for early forgiveness on the original $10,000.

However, if you consolidated the Parent PLUS loans into a federal direct loan, the debt would be included in the timeline analysis, derailing early forgiveness.

Steps to Access Early Forgiveness

1. Consolidation of Loans: If some of your loans are ineligible for the SAVE Plan, consolidating them into a Direct Consolidation Loan is necessary to qualify for early forgiveness. A common example would be an FFEL loan. Most borrowers won’t need to take this step.
2. Addressing Defaulted Loans: If your loans are in default, the Department of Education encourages you to utilize the Fresh Start program to make defaulted loans eligible.
3. Enrollment in SAVE Plan: Eligibility for early forgiveness requires enrollment in the SAVE Plan.

For most borrowers, getting early forgiveness only requires signing up for SAVE.

The Process of Loan Forgiveness

Once you are enrolled, eligible, and reach the timeline requirement, your loans will be placed in forbearance while your servicer processes the forgiveness. This period may extend beyond two to three months, but no payments are required during this time.

Final Thoughts on Early Forgiveness

Before this year, income-driven student loan forgiveness only made sense for borrowers with larger student loan balances.

Thanks to the new forgiveness timeline on SAVE, borrowers with smaller balances now have a more realistic path to debt freedom.