Demystifying SAVE: A Plan for Student Loan Relief

A lot has changed for all of us since March 2020, not the least of which being our financial situations and goals. Some people are in a better spot financially than they were 3 ½ years ago, but many find themselves struggling more than ever before. Federal student loan payments resuming in October only adds to the financial stress millions of people have already been feeling.

If you already received your student loan statement and were startled by the amount due, or perhaps are avoiding checking your email out of concern for when that bill will arrive, there are two things I want you to know: first and foremost, you are not alone! Second, you have options.

What is the SAVE Plan?

Many borrowers have turned to income-driven repayment plans to ease the monthly financial burden of repaying student loans. These plans have not always been easy to navigate or worked as they were intended to, however.

Enter: the new Saving on A Valuable Education (SAVE) Plan.

The Department of Education recently rolled out this brand-new income-driven repayment plan designed to further ease the financial burdens borrowers may experience as payments resume. If you are feeling the pressure of trying to figure out how to make your budget stretch further to fit in a student loan payment, the SAVE Plan may be an option that can help.

Here are some of the highlights:

More affordable payments

The best news first: the SAVE Plan was designed to offer the most affordable payments of any income-driven plan for “nearly all student borrowers,” according to the Department of Education. The SAVE Plan increases the amount of income that is exempt when calculating your payment (known as “discretionary income”).

The Department of Education notes that single borrowers who make $15/hour or less will have $0 payments if they enroll in the SAVE Plan, and other borrowers can still expect to see a lower monthly payment than on other plans.

The even better news? These payments are expected to be further reduced next summer. The SAVE Plan is set up for these initial payments to be cut in half starting in July 2024.

Balance won’t grow due to unpaid interest

One of the biggest frustrations many people have with income-driven repayment plans is that if their monthly payment cannot cover all the interest that accumulates each month, their loan balance can actually grow even when they have made all their payments on time and in full every month.

The SAVE Plan addresses this frustration by eliminating any remaining interest that is not covered by the monthly payment. For example: if your loans accumulate $100 in interest every month, but your payment under the SAVE Plan is only $75, that $25 difference will be eliminated if you make the payment due as agreed.

While this does mean your loan balance won’t really be going down (as the payment is just going to interest charges), the balance also won’t be growing – a key benefit of this new plan.

No more annual recertification

The SAVE Plan will allow you to provide approval for automatic access to your updated IRS tax refunds, which enables your servicer to automatically verify your income and household size. Translation? Your enrollment in the SAVE Plan can automatically be recertified each year without you having to do anything. If your payment will be changing as your income and household size changes, they’ll let you know.

Auto-recertification will start in July 2024, so if you apply now (or if you applied any time after August 2023) and provide the approval for access to your IRS tax returns, your plan will automatically recertify when the time comes.

…and more!

There are additional features of the SAVE Plan that make it easier than ever for many borrowers to navigate. Borrowers with original loan balances of $12,000 or less and those who file taxes as “Married Filing Separately” are further examples of who will benefit. You can read about all the SAVE Plan features on the Federal Student Aid website.

Learn more and apply

Use the Federal Student Aid Loan Simulator to explore the specifics of what the SAVE Plan would look like for you, and compare it to other repayment plans side by side to ensure you’re choosing the right option for your situation and goals. Once you go through the Loan Simulator and have viewed and compared all plans you’re eligible for, you can apply right there.

If the payment amount you are eligible for still feels like a stretch, reach out to GreenPath and we can review your entire financial situation with you. We’ll explore a variety of options across your entire financial picture and come up with a plan together that can make your student loan payment fit back into the budget a little easier.