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SAVE Plan Litigation: Why Higher-Income Borrowers Are The Big Winners

SAVE’s litigation may drag on, but it’s creating a savings window for savvy borrowers. Learn how to make this interest pause work for you.

Written By: Michael P. Lux, Esq.

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When the Department of Education introduced the SAVE repayment plan, it aimed to provide much-needed relief for borrowers struggling with their federal student loans.

Ironically, due to an unusual series of events, the group of borrowers who may benefit most from the SAVE plan are not necessarily those in the most financial distress, but rather borrowers who are financially better off and able to repay their loans in full.

SAVE Repayment Plan Background and Litigation

The SAVE plan (Saving on a Valuable Education) was designed to fix some of the biggest complaints about previous federal income-driven repayment (IDR) plans. With SAVE, borrowers could protect a greater portion of their income from their student loan payments, and for those with lower balances or without graduate debt, forgiveness could be achieved sooner.

However, several state attorneys general challenged the legality of the SAVE plan, filing a lawsuit to block its implementation. As a result, a preliminary injunction was issued, preventing borrowers from making payments under the plan for the time being. This block will remain in effect until the litigation is resolved, and the case could drag on for years, potentially going all the way to the Supreme Court.

Despite the legal challenges, the Department of Education has offered some protections to impacted borrowers. Most notably, borrowers who signed up for SAVE are placed in an interest-free forbearance while the litigation is ongoing, meaning they are not accruing interest on their loans during this period.

The Big Winner is Borrowers Who Plan to Repay in Full

While SAVE was intended to help borrowers in financial distress, an unintended consequence of the litigation is that borrowers who are focused on repaying their loans in full may come out as the biggest winners. With the payment and interest pause in place, this situation mirrors the COVID-19 payment freeze, which allowed borrowers to make substantial progress on eliminating their debt without accruing interest.

For borrowers who are already in a strong financial position, this pause represents a unique opportunity. They can continue making voluntary payments, chip away at the principal balance, and ultimately pay less in total interest over the life of the loan.

How to Enroll in SAVE to Get 0% Interest

Despite the ongoing litigation, borrowers can still enroll in the SAVE plan, and by doing so, they will receive the 0% interest benefit. The enrollment process is once again available by signing up at studentaid.gov.

Unlike other IDR plans, there is no income cap for SAVE enrollment. Borrowers in any tax bracket can sign up for SAVE and take advantage of the interest relief.

Once enrolled, borrowers are placed in a special forbearance status, meaning that although they are not required to make payments, interest will not accrue on their loans either. This creates a window to plan your repayment strategy without the burden of growing debt.

Maximizing the Benefit

Borrowers looking to make the most out of this situation should consider taking an active approach to managing their loans. One of the smartest moves is to set aside the money you would have used for student loan payments into a high-yield savings account.

By doing this, you gain two key advantages. First, instead of paying interest on your student loans, you can earn interest on your savings. This allows you to turn the payment pause into a financial gain. Second, it gives you flexibility. If you encounter a financial emergency down the road, such as a car repair or unexpected medical expenses, the funds in your savings account will be readily available. In contrast, once a payment is made toward your student loan, that money is no longer accessible.

When the litigation finally ends and payments resume, you can use the money saved to make a lump-sum payment, potentially knocking out a significant portion of your balance or eliminating it entirely. Likewise, you can switch into a more appropriate repayment plan if the new SAVE payments end up being too high.

Final Thoughts

The ongoing SAVE litigation has created a unique opportunity for borrowers to improve their financial standing. Whether you’re aiming for debt elimination or just trying to get through the legal uncertainty, there are strategies you can implement to make the most of this situation.

For borrowers looking to pay off their loans in full, this is a prime opportunity to reduce your balance without accruing interest. By enrolling in SAVE, taking advantage of the interest pause, and using smart savings strategies, you can turn a period of uncertainty into a period of financial gain.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

4 thoughts on “SAVE Plan Litigation: Why Higher-Income Borrowers Are The Big Winners”

  1. Thank you very much for your kind answer, Michael.
    Yeah, it is difficult to make a decision right now. I was concerned with staying in PAYE since my owed amount grew significantly since September. But other than that, maybe it is a good a idea not making any moves now, right?
    Thank you very much, again, for helping us all navigating these complex waters right now, and taking the time to provide us such valuable information!!
    Keep up the great work!!
    Cheers,
    Carrie

    Reply
    • Its really hard to make any blanket statements right now because there are so many variables at play.

      What I can say is that there are likely to be many changes that happen in the coming months, so waiting to see what happens next is definitely a legitimate plan that many borrowers will be using.

      Reply
  2. Thank you, Michael, for helping us understand the advantages of SAVE, even with the litigation going on.

    I’m on PAYE and no income, needing to recertify. I am about to switch to SAVE, but still concerned with the fact that my husband’s income has to be factored in. It is still a good idea? Thank you for clarifying it to me.
    Best

    Reply

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