It’s hard to overstate the significance of the new SAVE Repayment plan.
Rather than list the many borrowers who can benefit from the SAVE IDR plan, it is probably easier to list the few borrowers on IDR plans who wouldn’t benefit from signing up for SAVE.
That list includes the following:
End of list. If you have been out of school for a while or if you don’t have graduate debt, SAVE is almost certainly the best IDR plan available.
REPAYE (Revised Pay As You Earn) vs. SAVE (Saving on a Valuable Education)
The REPAYE plan is getting eliminated and replaced with SAVE.
Think of SAVE as a new and improved REPAYE. Borrowers will see some changes happen right away, and other changes will happen in July 2024.
The transition from REPAYE to SAVE is a two-phase process.
Phase I started with the repayment restart. Borrowers still pay 10% of their discretionary income each month, but the discretionary income formula changes. Instead of using 150% of the federal poverty level in the calculation, the number jumps to 225%. For borrowers, this means a smaller monthly bill.
The next immediate change is that married borrowers who file their taxes separately can exclude spousal income from REPAYE calculations. This improvement makes REPAYE a better option for married borrowers.
Finally, SAVE now covers 100% of the excess interest the loan generates each month. The current REPAYE subsidy only covers 50%. For example, a $10,000 loan at 6% interest generates $600 per year in interest or $50 per month. In this example, if your REPAYE payment is $20, it means $30 per month in excess interest. In the past, REPAYE immediately forgives 50% of that interest, meaning our borrower has $15 immediately forgiven. Now, REPAYE/SAVE will cover all $30 of the monthly unpaid interest.
Phase II happens on July 1, 2024. REPAYE formally becomes the SAVE plan, and the remaining provisions of SAVE take effect. These provisions include earlier forgiveness for borrowers with smaller balances and lower payments for borrowers with undergraduate debt.
Digging Deeper into the SAVE Plan: For a deep dive into SAVE rules and a calculator to estimate SAVE payments, check out the SAVE calculator.
REPAYE/SAVE Enrollment and Eligibility
The vast majority of IDR borrowers will want to sign up for the SAVE plan.
Those already in REPAYE should have had their payments automatically recalculated under the new terms. Borrowers can enroll in SAVE or update their IDR enrollment on the Department of Education IDR enrollment page.
All Federal Direct Loans are eligible, including Federal Stafford (Subsidized and Unsubsidized), Graduate Plus, and Direct Consolidation. The one exception is that Direct Consolidation loans that include Parent PLUS loans are not eligible.
Borrowers with FFEL Loans and Perkins loans are not eligible. However, these borrowers can consolidate the debt into a federal direct loan to gain eligibility. Additionally, federal direct consolidation at this time should not reset progress toward student loan forgiveness.
Defaulted federal loans are also not eligible. However, the Fresh Start program will allow borrowers to resolve the default and enroll in REPAYE/SAVE.
PAYE (Pay As You Earn) Gets Sunsetted
PAYE was a noteworthy repayment plan because it offered the lowest monthly bill when it was first created.
With the creation of the SAVE plan, most borrowers won’t benefit from PAYE. SAVE will always offer lower monthly payments than PAYE. Additionally, more borrowers will qualify for $0 per month payments under SAVE.
The Department of Education policy is that no new borrowers can sign up for PAYE. However, those currently on PAYE can stick with this plan.
One reason that a borrower might stick with PAYE is if they have graduate loans and they are nearing the 20-year IDR forgiveness. On SAVE, a borrower with graduate debt must make payments for 25 years before earning IDR forgiveness. Borrowers chasing this form of forgiveness must balance the higher payments on PAYE against the earlier forgiveness for those with graduate debt.
Another potential reason to stick with PAYE would be the payment caps on PAYE. For most borrowers this doesn’t make a difference, but if you have some high earning years on the tail end of your repayment journey, the cap could be a benefit.
IBR (Income-Based Repayment) Becomes a Rarely-Used Option
Borrowers on IBR pay 10% or 15% of their monthly discretionary income. The percentage depends on when they took out their first student loan. Those who borrowed after 2014 only pay 10%. Those with older loans pay 15%.
The IDR analysis will look almost identical to the PAYE analysis. REPAYE/SAVE is the cheaper and more affordable repayment plan for most borrowers.
The one exception is borrowers with graduate debt who are pursuing IDR forgiveness after 20 years. SAVE will make these borrowers wait 25 years.
The big difference between PAYE and IBR moving forward is that IBR will still be available for most borrowers, whereas PAYE disappears immediately for those not currently enrolled.
However, borrowers lose IBR eligibility after making 60 payments on SAVE after July 1, 2024. The purpose of this rule is to prevent graduate borrowers from making low payments on SAVE for 19 years and 11 months and then switching to IBR and trying to get forgiveness after 20 years.
The big decision for borrowers with graduate loans considering IDR forgiveness will be deciding between the lower payments of SAVE vs. the earlier forgiveness of IDR.
What about PSLF Borrowers? Borrowers pursuing Public Service Loan Forgiveness won’t have to worry about this issue. PSLF eligibility comes after 120 eligible payments (10 years worth). These borrowers can make payments on any eligible repayment plan, including SAVE.
ICR (Income-Contingent Repayment) Doesn’t Change Much
ICR was the first income-driven repayment plan, but it is also the worst one.
Moving forward, new students will not be able to enroll in ICR. However, borrowers with consolidated Parent PLUS loans can still sign up for ICR.
In the past, and under the new rules, consolidating Parent PLUS loans will be the only way to qualify Parent PLUS debt for PSLF or income-driven repayment.
Sadly, Parent PLUS loans cannot be eligible for REPAYE or SAVE. Thus, it remains critical not to consolidate Parent PLUS loans borrowed for your child with federal student loans borrowed for your education.
What if I Make Too Much for SAVE?
There isn’t an income cap for SAVE enrollment.
Borrowers with substantial incomes may have large payments, but there isn’t a salary cutoff for SAVE enrollment or calculations.
However, some borrowers may have incomes so large that other balance-based plans, such as the 10-year standard repayment plan, become more affordable.
Picking the Best Plan
Despite the changes, things are pretty simple for most borrowers now that payments have restarted.
Most people will want to sign up for the SAVE plan. It will has the lowest monthly payments, an interest subsidy, and full benefits arrive automatically next year.
FFEL and Perkins borrowers should probably consolidate before the IDR Count Update deadline and sign up for SAVE.
Parent PLUS borrowers won’t be able to benefit from the new repayment plan. Their strategy hasn’t really changed.
Borrowers with graduate debt are the only ones who face a decision. They will need to compare the monthly savings of REPAYE/SAVE against 20-year IDR forgiveness. Notably, not all borrowers with graduate loans face this issue. If your loans are too old to qualify for PAYE or IBR for New Borrowers, REPAYE/SAVE will be the best option.
Frequently Asked Questions
Many of you have sent me emails with questions about how SAVE will impact your repayment strategy.
Here are some of the most common questions I’ve received:
No. Your progress toward loan forgiveness shouldn’t get reset by switching to SAVE. With the IDR Count Update scheduled for early next year, some of you will be very close to forgiveness.
Possibly. The new policy for the Department of Education is to only capitalize interest when required by statute. For borrowers on IBR, it will mean interest capitalization. If you are on PAYE, REPAYE, or ICR you should be able to avoid it.
When you sign up for any federal repayment plan, you are not committed to that plan. You have to certify income yearly for SAVE (which can be done automatically), but you don’t have to stay on SAVE for any duration of time.
Whenever there is a change to student loan rules, or student loans are in the news, servicers get swamped. Wait times will be longer, but if you have an important question about your loans, keep calling and keep waiting. Sometimes, it is your only choice.
Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers updated on the latest changes and upcoming deadlines.
Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to ensure you don’t overlook any critical developments.
Have always been on a PAYE plan but never made enough to have to make payments. Do the years I have been on the plan count for forgiveness even if I haven’t had to make payments?
That is an interesting question. As a general rule, they wouldn’t, but under the one-time account adjustment, some of those months might. I think it would depend on whether you were in repayment status or a default status, but I don’t know.
I am helping my son understand the SAVE program. If he enrolls in this program, which seems basically like interest only payments for 10 years, then one starts paying principal if I understand correctly, can he still make principal only payments while in the program without penalty?
First, to clarify, SAVE isn’t interest-only payments. SAVE is based on the borrower’s income. For some borrowers, that might be interest only. For others, it could include large principal payments.
That said, borrowers on SAVE are permitted to make extra payments on their debt which would lower the principal balance.
All of my loans are undergrad FFEL sub & unsub. I know for commercially held FFEL I would need to do a direct consolidation in order to get on SAVE.
Question 1: Do my 2 FFEL loans held by the Department of Education have to be consolidated into a direct loan as well in order to switch to SAVE or no since they are already owned by the government?
Question 2: If I only put my DoED loans (original balance around 12k, still owe 9, paying since 11/2009) on SAVE and keep the rest as commercially held will I get forgiveness on the DoED loans or will they also factor in my commercial balances?
Question 3: Let’s say I pay all my balances down before doing a direct loan consolidation with the purpose of getting on SAVE & the one time waiver. Will that be counted as my “original balance” or are they still going to go off the numbers from when I graduated?
FFEL loans have to be consolidated to enroll in SAVE, regardless of who holds the debt.
As for questions two and three, SAVE forgiveness is based on the total original loan balance. It doesn’t matter how the debt is split among loans or what payments you have made in the following years.
I am on income contingent and have been trying to progress toward either the 20 or 25 years. I am unsure which one exactly I am working towards with this plan but I’m curious if it makes sense to switch to save. I have several loans that each are under 12,000 but totaling is closer to 50k. I don’t want to lose the time that I have been in repayment up to this point because I would say it’s a good 15 years or more. I am unclear however if switching to save can help me in anyway or if it would just simply make things worse. I am actively seeking the forgiveness timeframe. My monthly payment is already very low, but I do have unpaid interest. My spousal income is much much higher. However, I currently file a single because we are on married, and I go off my my current income instead of my house income. I think I’m more interested in trying to figure out if switching to the new save plan will help me any on student loan forgiveness.
Without knowing exactly what plan you are on and what federal loans you have, it is hard to say.
However, I will say that switching to SAVE shouldn’t restart your progress toward forgiveness.
You should be able to call your servicer to get more details on your progress toward forgiveness and SAVE eligibility.
I believe I am on income based with all federal subsidized or unsubsidized loans. I’m concerned about interest being capitalized as well.
I see where you are coming from. Unfortunately, there isn’t an easy answer in your situation. Instead, there are items to think about.
Here are a few to consider:
1) SAVE will prevent your balance from increasing further. If you eventually get taxed on your student loan forgiveness, having a smaller balance is better.
2) Switching from IBR to SAVE may cause a one-time interest capitalization.
3) The more money you earn, the bigger the monthly bill gap between IBR and the SAVE plan.
Ultimately, this is one of those situations where you will probably need to do some projections to find the optimal strategy. I think most borrowers will be better off going with SAVE, but there are circumstances where sticking with IBR will be the better choice.
Hi Michael:
Thank you so much for your insight! I am an attorney as well and graduated with tons of debt in 2011. $180K that has grown to about $220K. I am on the original IBR plan and earn about $155K/yearly. Pre-COVID I was earning just $95k so that has changed and I am super concerned about my new monthly payment so I am just looking for the lowest monthly payment and hope and pray I can deal with the “tax” bomb come forgiveness time. I am debating whether it makes sense to move to the SAVE plan. I’ve read about interest capitalization on my accrued interest but don’t fully understand it. Any thoughts about my situation appreciated!
Let me start by answering the easy question. If you income has gone up signficantly, waiting to recertify or change plans could be a smart move.
Things get trickier when it comes to changing repayment plans. Capitalization is when the unpaid interest gets added to your principal balance. For example, if you stick with IDR, you might only get charged interest on the $180k. If your interest capitalizes, you would get charged interest on the full $220k. In your situation, you have to weigh the higher monthly interest charges from interest capitalization against the lower monthly payments of SAVE. I don’t know that there is an easy answer, and to come up with something definite you may have to project income all the way out to 2036.
Hi Michael, you have been a great help, thank you. I have one final question. I was in IBR with a 20 year forgiveness time frame. I moved to SAVE plan. Also retired. My payments are omg, only $26.32 but, it looks like my write off time went to 25 years? I haven’t found anything that says yea or nay to that. I still think SAVE will save me money by not capitalizing interest if I pay on time, and taxes later on the forgiveness tax bomb. Do you know where or what it says about the 20 vs 25 years if you move to SAVE? My Mohela does show my 92 months payment credits.
I think I need to clarify a couple of things before I can answer.
1) Are you on IBR for new Borrowers or the original IBR?
2) Where are you seeing 92 months of payment credits on Mohela’s site? My understanding is that the only count on Mohela’s site is for PSLF, not IDR forgiveness.
Hi,
I have no graduate loans, all undergrad, at a community college. I had one year at university, didn’t like so went to CC for a different program, graduated June 2015 with AS. I entered repayment 6 months later on 12/15/15. I had 8 total original loans that I consolidated at that time. Currently, I have $10,799.55 DL Consolidated subsidized loan balance, and $18,738.06 in DL Consolidation unsubsidized loan balance. Also $4,142.05 in Accrued Interest as of 8/14/2023. I originally picked the IBR, the original, not new. I was trying for PSLF after I began to work at the State in July 2019 because one of options originally discussed during presidential 2020 campaign was to give $10,000 write off per year for up to 5 years. Biden seemed to like that one pretty well. So I did the paperwork and submitted, hoping. I am old enough, 66, that I knew I wouldn’t get the 10 years working at the State job, since I started 7/6/2019, but hoped for the $10k/year for 5 yrs. I would have had 5 years if I had stayed the 5 years, until July 2024 and would have if that option had been approved. That option didn’t go through so didn’t end up helping me and I wasn’t going to do another 6.5 years to get the 10 PSLF as didn’t want to work that long, for the amount of loan I owe, basically losing a lot of years of retirement. So, I know how many months have been counted towards my 20 years write-off because the verified/unverified list since 12/15/15 has now, 92 months/12 =7.66 years to date. You had already told me with link to document of law, that I won’t get the 10 year write off even none of my original loans were more than $12K because the balance of all the loans is more than $12k, so I am looking at the longer term, which for me was 20 years. I didn’t catch that that might extend to 25 years by going to SAVE. I applied and was approved for SAVE in July. I called and confirmed that by federal law, the interest to date will be capitalized on loan when moved to SAVE. I had $94K in income in 2022 and thru April did well but retired 4/20/23 so beginning May 1, I only have $2711 in SS and $3000 in IRA disbursement (pretax and pre pt b premium) as income. Mohela told me they don’t use SS to calculate income, yea!! I thought it did. So they used $3k x 12=$36K as income. While I was listed as the old IBR, based on older year income, my payment would have been $270. When I moved to SAVE, my payment would have been $388 based on the $94K. When I called to tell Mohela I retired and they recalculated, I was told my payment would be $107. THEN, when I checked on Saturday, (since I wanted to set up auto draft to get the additional .25% off the interest rate just in cause some how the interest was begun again) the payment is says I owe now showing $26.63 (and I don’t know why: haven’t received a notice). So, I am thinking even if my pay-off goes to 25 years. I am still good. It’s just I’d like to get it done before I’m 84 (laugh)! So no more interest as long as I pay on time, in full, the payment quoted. It’s very unlikely I’ll work again so don’t expect income to change radically. NOTE: when I entered repayment I was way below FPL. Then covid. I only made decent money since July 2019. So I have actually made very little payments towards these loans. I have, however, paid off the Wells Fargo loans which were for the university. I would never have gone back to college, having already gotten a BS which I paid for as I got, by working, but I got laid off after 23 years and could not find a new job making anywhere what I did so thought if I got a more pertinent degree, I could make more. Thus accrued college loans. Honestly I guess I could have made payments after I started at state but I concentrated on paying off Wells Fargo, credit cards that I lived on while underemployed, and doing a rainy day fund: I almost ended up on the streets when laid off. Wasn’t going to take that chance again. Sorry more than you asked but you can see where I am now. If you have any suggestions or guidance if I have done the wrong thing, I can reapply to go back to IBR but I haven’t looked at changes since you mentioned ‘new’ IBR.
The New IBR is the only one that offers forgiveness after 20 years, so it sounds like you might be on that plan based on the dates you attended school.
You seem to understand the pros and cons of the earlier payments vs earlier forgiveness, so I don’t have much to add their.
However, I will add that income-driven repayment pairs really nicely with living on social security. You may find that once you are fully retired, handling the student loans gets much easier.
Question about how they will count the $12k for SAVE forgiveness. The FSA website says this: “Borrowers with original principal balances of $12,000 or less will receive forgiveness of any remaining balance after making 10 years of payments, with the maximum repayment period before forgiveness rising by one year for every additional $1,000 borrowed.”
Does that mean that borrowers who took out $12k or less qualify for forgiveness, or does that mean that any LOANS that were $12k or less qualify. Basically, are they looking at individual loans (of which I have many that were smaller than $12k, but more than $12k when aggregated), or are they looking at the BORROWER and how much they took out. It was unclear to me from the wording and what I’ve read online. Any insight is appreciated.
Unfortunately, it is based on total balance, not individual loan balances.
See this comment exchange for more details.
5 sub/unsub loans – totaling $13,600. Yearly income=$34,600
Sound like SAVE is what I should use.
If I am entitled to SAVE, am I able to pay the principle down monthly anyway?
If SAVE payment would be $50, Interest is $75 – the $50 would go towards Interest, $25 extra Interest would be forgiven. If I have $50 left over at the end of my month, can I put those extra $50 towards my principle only? Can this be done every month?
Paying down my principle is really the main goal to help me pay this off sooner.
That is a great question and a very reasonable strategy. You should be able to do that plan.
However, I’d encourage you to watch your statements if you go with that plan. You should still get the full subsidy even if you pay extra, but watch how it gets applied to your account. You want those extra payments to cover the principal, not future interest.
Thank you Mr. Lux, follow-up question if I might:
SAVE and/or PSLF – do they require a loan consolidation?
My loans are 3.76%, 4.53% and 5.05%. If I consolidate would the interest rate by higher since Interest is much higher now than it was in 2016-2019 when I took them out?
If it would be higher (~7%) maybe SAVE and PSLF aren’t good choices for my case.
Consolidation is sometimes required for both PSLF and SAVE, but only for certain loan types.
For example, the most common loan that needs consolidation is an FFEL loan. However, that program was discontinued long before you started school.
You can call your servicer to verify things, but I suspect that you won’t have to consolidate to benefit from either program.
Ok, I understand. I still think their saying ‘balances’ is confusing but thanks for the link to the wording. Oh well, it would have been nice to have write off in dec 2025 instead of dec 2035 but it is what it is. At least with SAVE I won’t continue to accrue interest capitalized to principal and my 15% goes to 10% this year then 5% of discretionary in 2024. That will still save me some money now. Not so much when tax bomb hits. Thanks for all your help. I went back on Reddit and updated my comments to say I was wrong and add your clarification so you helped more than one person.
The phase II forgiveness under SAVE, “Those who borrowed $12,000 or less would receive loan forgiveness after making the equivalent of 10 years of payments.” Is this in total or per each loan? For example, I have 6 loans and each on the principal is $12,000 or under and I have paid for over 10 years, will those be forgiven under this pahse II of SAVE?
Unfortunately, it is total. If you have 6 loans at $5,000 each, it would be treated as $30,000 of debt, and thus it would take 20-25 years for forgiveness.
Thank you. One last question, 8 of my loans are IBR and the rest are REPAYE, should I switch my IBR to REPAYE to get the eventual benefit of SAVE? I would need to consolidate the 8 IBR loans to do this because they are FFEL which would cause the interest to be added to the principal.
I understand your hesitation to consolidate.
However, I’d point out that by consolidating you get much lower payments on REPAYE/SAVE. Additionally, you may qualify for a pretty generous interest subsidy that will prevent your balance from growing any further.
Finally, if you consolidate before the end of the year, you can benefit from a one-time IDR Count adjustment that might bring you closer to forgiveness.
My situtation is this: currently have $60,000 in Federal student loans and not married at this time, but planning to marry in the next 1-2 years. At that time, joint (married) income will be approx. $150,000 (with no loans for my spouse), my single income is currently $65,000. I think the SAVE program sounds like an option, but the question is if the savings from the SAVE loan program “get erased” by the unfavorable tax status of “Married Filing Separate”…I know the standard deduction of MFSeparate is 1/2 of the “Married Filling Joint” amount and don’t want to enroll in SAVE to think I’m gaining, but lose tax incentives by filing “Married Separate”…can you address? Thank so much!
The harsh reality is that there is a marriage penalty for student loan borrowers. In most cases, filing separately reduces that marriage penalty, but you correctly point out that it can result in a larger tax bill.
However, it’s worth pointing out that this problem is not unique to SAVE. All of the IDR repayment plans have this same limitation.
If you want to read more about this situation, I’ve previously covered the considerations and strategy for deciding whether to file jointly or separately for lower student loan payments.
I had IBR, entered repayment Dec 2015, 10 loans none over $12k. I consolidated when I went into repayment. I am now with Mohela but decided not to stay 6 more years with the State to get PSFL: I am 66. My loans: some were subsidized, some unsubsidized. I was below FPL for years in after I entered repayment. And had only made maybe one payment when Covid hit. I paid off my commercial student loans. I also had a great salary with a ton of overtime but, just retired 4/30/23 so now Social Security and IRA distribution. What I am wondering and cannot get definitive information yet: I have 91 credited payment months. Since none of my originated loans were over $12K, I am expecting the remaining to end Dec 2025. BUT, what about the interest? I have about $4500 accumulated interest. If it is capitalized, then when the loans are forgiven, is the interest too since it’s part of the owed total? Or is it separate so I will have to pay that off? It seems it would write off but I don’t feel comfortable until I see it in writing!
First, a clarification: the 10-year forgiveness on loans under 12k is for total balances under 12k. If you have 3 loans of 5k, it will take the 20-25 years to earn forgiveness on the debt.
Now for the good news, repayment on any income-driven repayment plan is compatible with living on social security. If you work with your tax preparer or accountant to make sure your IRA distributions don’t put your AGI over 225% of the federal poverty level, you can make $0 per month payments on SAVE until your debt is forgiven.
well you know I called Fed Loan to clarify the term ‘originating loan balance’. I had 10 loans, none over $12k. She saw them and said yes, since none of those loans were over $12k, it should apply. You think that is wrong then? I had 2 loans a year for 12/13/14.
I wish that information were accurate, but sadly, it is wrong. The 12k number is based on the “total amount originally borrowed.”
That language comes directly from the recently revised rules in the Code of Federal Regulations that created the new repayment plan.
Looking at the “Estimated Monthly Payment under SAVE Plan (https://studentaid.gov/announcements-events/save-plan).
If you enroll in SAVE Plan, have less than 20K loan and you fall in
Family Size = 1
Income of 50K/Year
Payment = 143/Month
– The total is higher than the duration of the SAVE plan (20 years).
In this case (While enrolled in SAVE Plan), can you accelerate the payment of the loan before it hit the 20 year deadline with no interest?
The 20 years on SAVE isn’t a deadline, it is the amount of time before borrowers earn forgiveness. Borrowers can always pay extra on their student loans without any penalty. By paying more than the minimum, it could help you pay off your loan quicker and spend less on interest.
However, this aggressive repayment strategy won’t allow you to avoid interest completely. You will still pay whatever interest accrues each month. The difference is that less interest accrues when you pay the loan off faster.
If we are already in REPAYE and don’t do anything will our payments just resume at the 2020 payment amount and will they stay that way until July of 2024?
The no payment cap on SAVE I thought was surprising.
If you are already on REPAYE, and you haven’t recertified dating backing to 2020, you will be able to resume at your old number. That payment amount will be good for at least six months, but you may have to certify after that time.
As for the lack of a cap on SAVE, I think it is the fair way of doing it. Can you imagine making payments for 24 years, being on the brink of forgiveness, and then losing out because you make too much money in that last year? Such a huge penalty for getting a raise or a better job would be bad public policy.
Thanks Michael for this article. I have an interesting situation. I owe $500,000. MOHELA says I will have a monthly bill of $1851 on PAYE. When I used the beta SAVE application on Studentaid.gov, it’s saying I will owe $3893 monthly on SAVE and $4144 on PAYE. I’m thinking I shouldn’t rock the boat and switch to SAVE (even though these numbers make no sense…I’m just not getting why MOHELA is so much lower than studentaid.gov).
That is interesting. There are a few potential explanations.
First, were you on PAYE before the payment pause started? If so, that number could be based on your 2019 tax return, and if you are making more money now, it would explain the big difference.
Sometimes marital status and how you file your taxes can also enter the equation.
Ultimately, it might be in your best interest to take a deep dive and understand how the calcluations are made so that you can identify which number is right. I’ve got both a SAVE calculator and a discretionary income calculator that can help with this task.
Once you figure things out, if you think of it, please add a new comment to this chain. I’d love to hear how it happened and it might help others in a similar boat.
Thanks for your quick response! This is actually based on my updated income, as I just went through the consolidation process to get credit for some past months that had initially been denied for reasons beyond comprehension. Looking at my MOHELA letter it says my first 12 months of repayment would be under PAYE-PFH (partial financial hardship). It also says my first payment would be due on 7/18/23? It’s confusing. I’d call MOHELA but they don’t pick up the phone.
I find whenever student loans are in the news, the loan servicer response times get super slow. That said, you should keep calling them to get your questions answered.
Right I recently became unemployed and my plan is much cheaper with an ICR than SAVE because its basing of my joint income with my spouse. But after taxes for 2023 it will be cheaper…Would it be possible to sign up for ICR and then switch to SAVE next year?
You are able to sign up for ICR now and then switch to SAVE next year.
In fact, you could sign up for REPAYE/SAVE as soon as you file your taxes.
Thanks for the response!
Will one still be able to enroll in PAYE now? If yes, what will be involved into switching into the SAVE next year when SAVE becomes available?
Assuming you are eligible for PAYE (meaning you have eligible laons that are not too old), you can still sign up for PAYE. When SAVE becomes available, you can sign up.
However, the best approach for most borrowers is probably to sign up for REPAYE now and have it automatically convert to SAVE as soon as it becomes available.
thank you Michael!
what if SAVE gets struck, then I will have to stay with REPAYE. That’s why I am thinking to start with PAYE just in case, and switch over when SAVE becomes available.
When is PAYE going away? when SAVE becomes available?
Thanks!
That is an interesting thought. I’ll start by saying I’d be really surprised if the courts struck down SAVE. The rulemaking process used to create SAVE has been used to create other repayment plans, so it sure seems like it is on a strong legal ground. I’m also not aware of any existing lawsuits against the plan. Obviously there are no guarentees, but this is much different than the loan forgiveness that was recently struck down by the Supreme Court.
As far as PAYE becoming unavailable to new borrowers, this would be scheduled to happen July 1, 2024.
As a final thought, I’d note that PAYE is going away because it is being replaced by SAVE. If the courts struck down SAVE, they would be striking down the same rules that limited PAYE availability.
Thanks again.
I thought PAYE goes away and SAVE replaced the current REPAYE. So in the case that SAVE would be struck down, I was thinking it will go back to the old REPAYE. But I see your point.
However, do you see any downside of starting in PAYE and converting to SAVE later on? Will it be difficult to switch?
Thanks!
Switching repayment plans is quite simple. As for downsides of PAYE vs SAVE, if you are on PAYE you miss out on the unpaid interest subsidy offered by REPAYE/SAVE. Also, REPAYE/SAVE will likely offer lower payments.
Thank you so much! Appreciate it!
How often one can switch plans? Let’s say I enroll now in PAYE, when will be the first available window to switch to SAVE.
Also, how long it usually takes for a PSLF form to be approved? If I apply in the next couple of days will it be done in time for Oct payments?
Thanks!
You can sign up for REPAYE now if you want to get on SAVE as quickly as possible. However, if you are on PAYE, you can change plans to a different plan whenever you want. Your income certification lasts for a year, but you are not committed to staying on the plan for a year.
As for PSLF form processing, it’s really hard to say right now. With so many changes happening right now, processing times are really hard to predict. Your best bet is to call MOHELA and get a direct answer from them.
It seems like you are very knowledgeable. I really appreciate any insights you have into my situation.
So I have Graduate loans from law school (2009-2012) in Income Based Repayment Plan (w/ 6-8.5% interest). I originally borrowed $168k, and despite paying approx $50k over the last 10 years or so, I was never able to make payments that covered the growing interest, which is now nearly $70k for a total of $239k.
I have some things that I’m concerned about:
– Am I correct in assuming entering into REPAYE now will make my discretionary payments 10% instead of 15% and result in forgiveness of 50% of my interest that is unpaid each month (and 100% when it switches to SAVE in 2024)?
– When moving from IBR to REPAYE, my outstanding interest would capitalize, correct? Since I assume my long-term strategy is forgiveness, having the interest forgiveness each month (and the loan not growing in size) is going to be more important than the interest capitalizing, is what I’m thinking, but would be interested in your thoughts.
– I believe my graduate loans from 09-12 are 25-year forgiveness vs 20 years which some younger students were able to get, so I presume that changing to REPAYE will make no difference there. Am I correct in assuming any time that I have amassed under my IBR plan will be applied to my 25-year forgiveness under REPAYE/SAVE?
Lastly, I’ve read that some forbearance of loans will count toward the loan forgiveness period, but sources didn’t seem clear to me whether that was official. Some suggested that up to 12 consecutive or 36 cumulative months could be applied toward the forgiveness period.
Thanks for any help!
Lots of good quesitons here.
You are half right about entering into REPAYE right now. Your payments will drop to 10% of discrtionary income, but the subsidy will immediately start covering 100% of the unpaid interest.
You are also correct about the capitalized interest. The good news is that by switching to REPAYE/SAVE, you shouldn’t have any future unpaid interest accrue.
Swtiching to REPAYE/SAVE does not restart your progress toward IDR forgiveness. And yes, some previous deferements and forbearances will count toward that IDR forgiveness. It is part of the one-time IDR payment count adjustment.
Thank you so much for the info! You are doing quite a service for the community in this changing landscape.
Thanks for the kind words Greg! I really appreciate it!
Hello,
I am a PSLF Borrower currently on PAYE and the majority of my loans are Graduate loans. I have 8 years left for PSLF forgiveness.
With PAYE, the monthly payment will not exceed the 10-year standard repayment amount. I don’t see this listed with SAVE… Is it possible that the SAVE monthly payment could exceed what my 10 year standard payment would be? Thus, rendering my PSLF forgiveness void?
That concern doesn’t exist for a couple of reasons.
First, the 10-year plan is PSLF eligible, so in the event that it becomes the cheapest repayment option, you can switch to that. This protects people who make 8 years of PSLF payments, then get a big raise.
With PAYE, you cannot sign up for the plan if the monthly payment would be greater than the 10-year plan payment. With SAVE, you don’t have that limitation, meaning you can stay on SAVE, even if the monthly payment is higher than the 10-year plan. This protects people pursuing IDR forgiveness who have a big raise in year 18 or 19 of their repayment journey.
I’m not enrolled in any repayment plan at the moment due to graduating during Covid. I graduated with my doctorate, however as well all know it takes time to bring in the big bucks. As a new doctor (psychology) my biggest concern is having a low payment. Because I also plan on pursuing the PSLF in 10 years by working in the public sector, I want to know can I remain eligible for the SAVE plan if I enroll in the REPAYE plan now?
I’m currently married with 1 child (filed HOH), so the Loan simulator has my monthly loan for PAYE at $470; REPAYE at $1350 and my SAVE at $292 per month. Of course I would love to just pay the $292 for 10 years and be done, but is this even possible?
Background for context: Our annual household income is about $200k, (but in South FLA, that doesn’t go far) and we also take care of our parents due to the housing crisis so they are living with us. They do not contribute to the household due to their limited and fixed incomes.
To answer your first question, you can absolutely sign up for REPAYE now and then enroll in SAVE. In fact, signing up for REPAYE is the best way to enroll in SAVE. Once SAVE becomes formally available on July 1, 2024, it will replace the REPAYE plan. All of the borrowers who are on REPAYE will be converted to SAVE.
Unfortunately, you cannot make 10 years of payments at the $292 figure. When you income rises, your IDR payment will grow with it. The nice part is that there is a delay in this process. Your IDR payment is based on your most recent tax return. Thus, if your income is steadily rising each year, you are making payments based on the previous years income. However, if your income drops, you have the option of automatically recalculating your IDR payment.
Hi Michael,
Thank you for guidance in all this! I have 3 federal Direct loans. I started repayment in 2000. I am currently in a Graduated Repayment plan. Do I need to switch to an IDR to get credit toward forgiveness? My understanding is that I won’t get credit because its not an IDR plan even though my loan is 23 years old.
You should get credit for those previous payments, even though they were not on an IDR plan. You’ll want to check out this article on the IDR payment count update for more details.
Ok thank you!
i have 2 loans currently on IBR. it says i have 10 more years till forgiveness. i been on it since 2013. so that makes sense. but when i look at the repaye plan it states forgiveness would be in 2043 so it restarts the clock. will my 10 years on IBR count towards SAVE?
If you are looking at the loan simulator on studentaid.gov it often gets the forgiveness math wrong, especially in light of the new rules. That tool is most useful for the people just starting repayment. Hopefully it will be adjusted in the coming months to account for previous payments on other IDR plans.
To be more clear, your progress toward IDR forgiveness will not get erased if you switch to SAVE. IBR payments count toward IDR forgiveness and SAVE payments will count as well.
Thanks!
Will SAVE benefit those who want to pay off their loans within 2-5 years?
My SIL (single, no kids) owes about $50k Federal for undergrad + grad (roughly $12k at 7%; $12k at < 5%; the remainder ($26k) at ~6%)
She has $50k in cash too in a money market going at about 4.5% give or take. Student loans aren’t her only debt and she has bills but we will keep it simple.
Her pay is going to be about $20/h for 2-3 years (career change) and she plans to use these paystubs in lieu of prior years AGI (about $80k in 2022).
Unfortunately the estimates are kind of difficult to ascertain from the website right now because of all these hypotheticals.
But the plan/goal is to throw in $12k immediately to get rid of the 7% interest. Following that, she’d want to pay off as little of the low interest loans as possible because right now the rates cancel out. That leaves her with $25k which she plans to take care of within 2-5 years depending on what is optimal and life.
Is this a good strategy? What I’m seeing is at $36-$40k a year (assuming it won’t be an issue to use this pay vs prior years) her payment obligation will likely be in the $100s a month if she were to qualify for SAVE (or possibly any IDR).
This is opposed to the long-term graduated repayment plan, which may be closer to $250 a month and doesn’t have the perks that SAVE may have.
It seems like under SAVE she would barely have to make any payments and could prioritize paying extra into her other/overall debts in order, from highest interest rate to lowest.
Especially if the monthly requirement is lower than the interest and won’t be tacked onto the principle.
Am I missing something here?
1. Would she have to consolidate in order to benefit from SAVE?
2. Does/can she benefit from SAVE?
3. Will non-taxed stipends have to be included as part of salary for SAVE/IBR or is it just the wage that is taxed?
Thank you
Great questions and analysis here. I’ll jump right into your questions.
1. Consolidtion usually isn’t required to sign up for SAVE. However, if she has FFEL or Perkins loans it might be necessary.
2. She absolutely can benfit from SAVE. Based on the numbers you describe, her loans generate about $250 per month in interest. The REPAYE/SAVE subsidy will cover the portion of interest that the monthly payment doesn’t cover. For example, if she pays $150 per month and the interest is $250, she will get a $100 subsidy each month. Even if she chooses to pay extra, she still gets the subsidy. This could allow her to focus on other debts that might have higher interest rates or worse terms.
3. IDR payments are based upon adjusted gross income (AGI) on tax returns. If she has money coming in that isn’t taxed, it wouldn’t be included in the AGI.
Has anyone considered that quicker forgiveness will lead to quicker accountability to the IRS which taxes student loan debt forgiveness as income . Depending on how much you borrowed , this tax requirement could be burdensome . Does anyone know more about it or how they calculate what you would owe in taxes?
You are right about taxes potentially being an issue. We often call it the “tax bomb” of forgiveness.
Right now, there isn’t a federal tax on forgiveness. However, that could change in the future. Additionally, some states still charge taxes on the forgiven debt.
I’m of the opinion that the federal tax bomb will eventually disappear entirely, mainly because it is bad policy. However, I’m not counting on it. As someone working toward forgiveness, I have a backup plan in case I get a huge tax bill.
Its also worth noting that of all the IDR plans, SAVE might be the best option from a tax perspective because of the interest subsidy.
As far as calculating the tax bill, it depends on a number of circumstances. For starters, we don’t know what the tax brackets will look like that far into the future, and it’s hard to project what your income might look like that far into the future. For now, just know that you may be taxed as though you earned extra income that year. So if you have $30,000 forgiven, your income tax will show that you earned an extra $30,000 that year.
This won’t be an issue until 2026, and hopefully, it will be permanently fixed before that time.
Thank you for your astute response . Does the SAVE repayment option consider all payments made toward repayment or just the ones in income-driven repayments? Also, Ive heard some forebearance / deferment periods are being counted toward repayment , so it’s a bit hazy and complicated to me .You mentioned that you won’t reach forgiveness by 2026 . Is there a way I can figure how many years I have left in repayment before forgiveness is possible ? I have several different servicers
That is a really tricky question, Victoria. I’d first direct you to the IDR payment count adjustment. This is the program that is looking back to award IDR credit for non-IDR repayment plans and some forbearances/deferments. You will have to look over those rules and your payment history to run the numbers. When your servicer updates the IDR count, compare your numbers against theirs. If the numbers don’t match, you will have to work with them to get to the bottom of it.
The Department of Education does track payment records, but their data is often incomplete and hard to discern.
I have been in the repaye program for 11 years. Will moving to the SAVE program restart the clock?
It will not. You will be able to keep your REPAYE progress without restarting the clock.
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Hi Steven! You’ve been added to the list.
on this new plan, will paying ahead count towards the payments required to receive forgiveness?
Paying ahead isn’t really to your advantage on the SAVE plan. If you are suggesting making five years worth of payments at once to get forgiveness, it isn’t an option.
More importantly- is SAVE truly forgiven after 25 years???
What do you mean by “truly forgiven”?
It’s possible there will be a tax on this forgiveness in the future, so that could be one way it isn’t “truly forgiven”.
Exactly. It would be worth it for me to switch to SAVE if the remainder was truly forgiven, but if I am just in the same spot, saving up for a huge tax bill, then it seems best to stay on PAYE for the last 9 years.
Michael,
Do you see risk in exiting PAYE to get on REPAYE/SAVE, only for a legal challenge to be brought where SAVE, or certain advantages associated with it, is/are struck and then borrowers would be unable to get back into PAYE?
That is a really interesting question.
I’ll start by saying that I can’t definitively answer your question because I can’t predict the future. However, I will say that the concern you have raised seems unlikely to me.
The rule preventing people from going back to PAYE is part of the new SAVE rules. If for some reason SAVE was struck down, that rule should also be eliminated.
Nice write-up. I have a $270k Federal Direct Consolidated Loan in IBR pre-pandemic and wasn’t even covering interest on a monthly basis. It seems like I am trying to run out the clock, whether 20 or 25 years (grad loans), so maybe this SAVE is a better option. My spouse makes more than me (150 vs. 110), so I think we made a mistake filing jointly maybe. The low rates under SAVE are probably worth the additional 5 years of repayment and any tax benefits lost for not filing jointly. Then again, I don’t say that confidently at all.
Thanks for the kind words.
One other thing to keep in mind is that the debt forgiven after 20 or 25 years might get taxed. I’m hopeful that the tax bomb will get permanently erased, but we don’t know for sure. In that instance, the subsidy could be really valuable.
Hi Michael! I love your articles. I have 180k in grad student debt and am currently under the PAYE program. I have about 9 more years of repayment. So if I understand you correctly, I am in that exact boat you mentioned- sorting out whether it’s worth it to have higher payments and be forgiven in 9 years- or lower payments at 14 years.
Here is my big question- everyone says you “may” be taxed on the forgiveness. This is a big “maybe.” Based on my calculation, my 180k will grow to over 300k in 9 years and I’m looking at a huge tax bomb of 150k. How do I figure out the criteria for this “may”? Does that make sense?
Hi Sarah! Thanks for the kind words. You are definitely in that tricky position, and I can see why you would like more clarity on the tax situation.
Unfortunately, everyone says “may” for a good reason. The general rule is that debt forgiveness is taxed as income. However, there is a permanent exception for PSLF forgiveness. There is also a temporary exception for other forms of student loan forgiveness, including IDR. However, that temporary rule will have expired by the time you reach forgiveness.
In my opinion, the tax probably won’t happen by the time you reach forgiveness. Its just objectively bad policy. However, I am in a situation similar to yours, so I’ve put together a plan in case my debt forgiveness does get taxed.
I have two FFEL loans that are held by the Department of Education. Are those eligible for the SAVE repayment plan? One is $12,000 and the other is $4,000.
The loans are not eligible for SAVE right now. However, you can consolidate the loans into a federal direct loan, and that loan is eligible for SAVE.
To better understand this process, I’d suggest reading up on how to sign up for SAVE, and learning about the IDR Count Update. If you consolidate before the December 31, 2023, deadline it could get you much closer to loan forgiveness.