The newest federal income-driven repayment plan will be called SAVE, Saving on a Valuable Education. It includes several exciting changes for borrowers.
The calculator below was created using the exact terms as proposed in the federal registrar. The Department of Education has also released a fact sheet that provides a nice summary of the new SAVE plan.
Sherpa Tip: This calculator estimates REPAYE payments at the restart (which are different than previous REPAYE calculations) and SAVE payments starting July 1, 2024. Scroll down for more details.
REPAYE, New REPAYE, and SAVE
The new SAVE plan will essentially replace several different IDR plans.
Notably, the REPAYE plan will become the SAVE plan. However, the changes don’t happen immediately. When repayment resumes, borrowers previously enrolled in the REPAYE plan and new REPAYE borrowers will benefit from a few significant changes to the REPAYE formula.
By July 1, 2024, the transition from REPAYE to SAVE should be complete. At that time, the calculations become even more favorable for borrowers with undergraduate debt.
The calculator above is designed to help borrowers project payments on the temporarily modified REPAYE plan and the SAVE plan when it becomes available.
Important Eligibility Notice
All federal student loans would be eligible for this repayment plan except for two notable exceptions.
FFEL Loans and Perkins Loans – FFEL and Perkins loans are not eligible for REPAYE or SAVE but could be made eligible through federal direct consolidation.
Parent PLUS Loans – Parent PLUS loans are not eligible for any IDR plan other than the income-contingent repayment plan (ICR). The proposed changes would not alter this rule. Unlike FFEL loans, a simple consolidation does not fix the Parent PLUS eligibility issue.
Note for Married Couples
Calculating monthly payments without counting spousal is now possible with the SAVE plan. This is a significant change from the current version of REPAYE, where married couples could not file separately to exclude spousal income from monthly payment calculations.
If you expect to file separately on your next tax return, enter only your adjusted gross income in the line asking about income. If you are filing jointly, please enter your combined income.
This calculator is not a perfect tool. There are some potential issues that borrowers using it should understand.
- The SAVE Plan could change. It’s possible that Congress passes legislation or someone files a lawsuit that causes the new plan to get blocked. Such an event is unlikely, but it remains a possibility.
- Mistakes happen. If a number gets transposed or there is confusion about eligibility, payments might not happen exactly as you hoped.
- Income Information changes. By the time the new plan becomes available, you may have gotten married, gotten a raise, or started a new job. All of these factors could dramatically change your monthly payment.
- Calculations for married couples get complicated. If you and your spouse both have federal student loans, filing separately may become extra beneficial under the new plan. That calculation is a bit more complicated and will be available in a future update.
- No Cap on SAVE Payments. If you have a small loan balance and a large income, it’s possible that you might be better off enrolling in a balance-based plan such as the 10-year plan or the graduated repayment plan.
Plan Highlights and Other Benefits
The big headline is the lower payments that you have probably seen after using the calculator.
These lower payments happen for two main reasons. First, discretionary income gets redefined for the SAVE plan. Previous calculations used a discretionary income of 150% of the federal poverty level. This new plan would use 225% of the federal poverty level.
Additionally, undergraduate borrowers only pay 5% of their discretionary income toward their loans. In the past, it was a minimum of 10%. Borrowers with only graduate debt will still pay 10%. This isn’t really fair to teachers and social workers, but it is still an improvement. Those with a mix will pay a weighted percentage between 5% and 10%. For this reason, the calculator asks about undergraduate and graduate debt.
Beyond the lower payments, there are some other significant changes:
- Borrowers with balances of $12,000 or less are eligible for forgiveness after just ten years instead of the standard 20. This benefit is available starting July 1, 2024.
- The already excellent REPAYE interest subsidy will cover 100% of a borrower’s unpaid monthly interest. This benefit is available from day one of the restart. Use this calculator to estimate the value of the monthly SAVE subsidy.
- Borrowers can file separately to reduce the marriage penalty.
New Plan Availability Timeline
As previously noted, the restart happens in two phases.
In phase one, there is a modified REPAYE calculation. Borrowers can sign up for REPAYE whenever they like. Borrowers already on REPAYE will get the benefit of the new temporary calculation.
In phase two, SAVE replaces REPAYE and is fully implemented. This happens on July 1, 2024.
Sherpa Tip: Don’t wait for the new repayment plan to become available before addressing your federal loans for the restart. You can change repayment plans whenever you want, and there isn’t a benefit to waiting.
Additionally, borrowers on REPAYE will automatically get converted to the SAVE plan.
Repayment Plan Alerts
Because we are dealing with an indefinite timeline on the new repayment plan, I’ve set up a mailing list to notify readers of any big changes.
At most, you will receive one email per month. The idea is to highlight the critical changes and essential deadlines that borrowers need to know.