Saving on a Valuable Education (SAVE) Plan: Important (and huge for many!) Changes to Student Loan Repayment

Many folks were disappointed today when the Supreme Court struck down the Biden Administration’s proposal to forgive $10,000 in student loans (up to $20,000 for those will Pell Grants). While disappointing, the Biden administration immediately announced the final version of a new proposed program that I wrote about previously.

The new program is called SAVE (Saving on a Valuable Education) and will replace the existing REPAYE program. I’ll still need to study it more (and have others who know more about student loans get into the nitty gritty), but much like that previous post let me summarize what I believe to be accurate (but could be wrong on some of the details).

At first blush, this appears to be essentially the same as what I wrote about previously, only some of the changes happen immediately and some won’t take effect until July 1, 2024. See the pdf linked from that announcement for the details, but here’s what I believe to be accurate. (Also keep in mind this also goes along with the extension of the IDR waiver I wrote about previously.)

Note: Some of this is verbatim from the pdf as I couldn’t figure out a way to simplify the language. Also, this applies to federal student loans only, not private loans.

Effective Immediately

1. All borrowers who are currently in the existing REPAYE program will automatically be transferred to the SAVE program. (If you are not currently in the REPAYE program, you will likely want to switch to SAVE from your current income-based repayment plan).
2. The percent of income protected from payments increases from the current 150% of poverty level to 225%.
3. Any interest on your loan that is not covered by your income-based repayment under SAVE will not be added to your balance.
4. Married borrowers who file separately will have their payment amount be based on their income only, not their spouse’s (previously you couldn’t do this under REPAYE). While borrowers filing separately will have to exclude their spouse from their family size (for the 225% of poverty level guideline in #2 above), they will still be able to count their children. (I believe this also means that if both spouses have student loans, they both would be able to claim the children as part of their family size for their respective income exclusion amounts.) Many folks who previously filed joint returns will now want to file separately until their loans are paid off or forgiven.

Effective July 1, 2024

1. Changes the repayment percentage for undergraduate loans to 5% of discretionary income (from the current 10%; still 10% for graduate loans, with a weighted average if you have both.) Discretionary income is Adjusted Gross Income (AGI), typically found on line 11 of Form 1040 (and then you subtract off 225% of the federal poverty level income for your family size).
2. People who don’t qualify for Public Service Loan Forgiveness (PSLF, which is forgiven after 120 payments anyway) whose original principal balances were $12,000 or less will receive forgiveness after 120 payments, with an additional 12 payments added for each additional $1,000 borrowed above that level, up to a maximum of 20 or 25 years. (Previously you had to make payments out to 20 or 25 years no matter your principal amount, now it can stop earlier.)
3. Borrowers who go 75 days without making a payment will automatically be enrolled in the SAVE program (if they’ve granted the Department of Education access to their federal tax information).
4. Borrowers in default will gain access to the existing income-based repayment (IBR) plan, allowing them to access lower payments and accumulate progress toward forgiveness while they work to exit default. Borrowers in default who provide income information that shows they would have had a $0 payment at the time of default will be automatically moved to good standing, allowing them to access the SAVE plan.
5. Borrowers will receive credit toward forgiveness on certain deferments including those related to unemployment, cancer treatment, and military service. Going forward, borrowers will also receive credit for certain forbearances such as those related to natural disasters.
6. Borrowers who end up in a deferment or forbearance that is not counted toward forgiveness (other than in-school deferment) will have up to three years to make additional payments based upon their current IDR payment to receive credit toward forgiveness for those periods.
7. Borrowers will receive credit for payments made prior to a consolidation based upon a weighted average of the principal balances in the loans being consolidated rather than having their progress toward forgiveness reset.

Again, for many folks, this is huge, especially for educators (and others) who qualify for PSLF. For example, here is the spreadsheet I developed under the proposed rules for that earlier post (note the three tabs with different examples). (Also note that this is just an example using a local school district’s salary schedule and benefit information, you can change it to match your information.) By default, the spreadsheet has the 5% of discretionary income for undergraduate loans that now will not go into effect until July 1, 2024, but you can change that to 10% to find your payment from when they resume on September 1st until July 1, 2024 (at which point undergrad loans will be 5% of discretionary income, grad loans will be 10%, and if you have both it will be weighted average). Choose File–>Make a Copy to get a version you can edit. There are also many folks who will receive immediate forgiveness on July 1, 2024 based on payments credited for numbers 5-7 above.

Separately (but not finalized yet), the Biden Administration announced a new proposal (that still has to go through public comment) for a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that borrowers who miss payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies. Hopefully everyone will be able to make your payments but, if not, this gives you some breathing room before being considered delinquent or in default and affecting your credit score.

Again, I may not have all the details and nuances exactly correct (I will update if I find something amiss), but please share this information with everyone you know who has federal student loans, and especially educators who qualify for PSLF (and act on it yourself if you have federal student loans). And also check out my previous post for some ideas of how you can reduce your AGI to lower your loan payments even more. If you need help navigating all this and are willing to pay for help, David Gourley is a good resource.