It’s Your Money: The new SAVE Plan for student loan borrowers is good for all of us

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Its Your Money


NEWS: The Supreme Court shot down President Joe Biden’s student loan forgiveness plan a couple weeks ago, but this morning, the U.S. Department of Education launched the SAVE Plan, which will cut student loan payments for low-income borrowers, and even – gasp! – forgive balances for some.

WHAT DOES THIS MEAN TO YOU? If you have student loans, you may be getting a break, or you may have to pay in full. If you don’t have any student loans, you will still benefit from the stronger financial foundation this will provide to your community. Seriously.


Millions of student loan borrowers will get a break after all, though not the big one in President Joe Biden’s now-dead student loan forgiveness plan.

The U.S. Department of Education on Friday launched the Saving on a Valuable Education Plan (SAVE), which tweaks income-driven repayment for federal student loans. The plan means payments of $0 for the lowest-income borrowers, and savings for many more. It also includes much more generous forgiveness provisions than Biden’s defunct proposal.

The Department of Education had announced the plan immediately after the June 30 Supreme Court decision was announced, but today it became official.

The SAVE Plan is a tweak to the Revised Pay As You Earn (REPAYE) Plan, one of four income-driving repayment plans offered to federal student loan borrowers. Both SAVE and its soon-to-disappear predecessor set monthly loan payments based on income and family size, but SAVE carries a much bigger financial break.

The biggest change is that the income exemption has changed from 150% of the federal poverty line to 225%. This means that if you are single and make $32,800 or less, your monthly payment is zero. A family of four doesn’t have to pay if the household earns $67,500 or less. Borrowers who make more than that will still get a break on how much they have to pay, depending on their income. Income is recertified yearly, and payments are adjusted for changes.

Interest will not accumulate on the balance while you’re not paying – a big change from the previous plan. 

If you’ve borrowed $12,000 or less, and are on the SAVE plan, your remaining debt will be forgiven after 10 years (it was previously 20 years). A year is added for every additional $1,000 borrowed, so if you borrowed $13,000, it’s forgiven after 11 years; $14,000, 12 years, etc.

I know! It’s a little confusing, given the Supreme Court thing. I’m sure you have questions.

Q. When does this start and how do I get it?

A. Applications for SAVE will be available shortly. You have to apply for it to get it. If you’re in REPAYE, you’ll be notified that it is switching to SAVE. You likely won’t have to do anything if you’re already enrolled in REPAYE.

SAVE is for student borrowers with federally held loans, including all direct subsidized, unsubsidized and consolidated loans, and PLUS graduate loans. If you have Federal Family Education Loans (FFEL) or Perkins Loans that are held by a commercial lender, you have to consolidate into a direct loan in order to qualify.

If you’re a parent who took out a federal Parent PLUS loan to help your child pay for college, you are not eligible.

Q. I’m not in REPAYE, I’m in some other federal income-driven repayment plan. I can’t remember which one because the acronyms are all so similar. Can I get SAVE?

A. Good question! I don’t like the acronyms either. And all the programs sound like the same thing. So, there are four income-driven repayment plans offered for federal student loans. They all are based on income and family size.

REPAYE is the only plan that will automatically enroll you in SAVE. If you’re in one of the others, you have to either switch to REPAYE, or just apply for SAVE when the applications come out. If you don’t have an account with studentaid.gov, now is probably the time to sign up for one.

SAVE Plan screenshot

I won’t go down a rabbit hole of all the differences, but the four plans are:

  • Revised Pay As You Earn Repayment Plan (REPAYE Plan) has payments that are generally 10% of your discretionary income
  • Pay As You Earn Repayment Plan (PAYE Plan) is generally 10 percent of your discretionary income, but never more than the 10-year Standard Repayment Plan amount.
  • Income-Based Repayment Plan (IBR Plan) is generally 10% of your discretionary income if you began borrowing after July 1, 2014, and 15% if it was before that, but never more than the 10-year Standard Repayment Plan amount for either.
  • Income-Contingent Repayment Plan (ICR Plan) either 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income – whichever is less.

Q. What about interest accumulating if I enroll in SAVE and have a zero payment? I mean, that’s how they get you, right?

A. It IS how they get you. But the SAVE Plan won’t be part of “they.” Interest will not accumulate when you’re paying nothing. If you’re on the plan and making monthly payments that are less than what you’d be paying for a standard one, interest also won’t accrue above the amount you’re paying. 

And another big change – unpaid interest on your loans won’t be added to your principal when you leave any IDR plan, not just SAVE. The only exception is the Income-Based Repayment (IBR) Plan where capitalization is required by state statute. If you’re confused, talk to a representative at your lender.

Q. What if I cut some expenses and still want to pay? Does that mess up my eligibility?

A. No, the SAVE Plan is based on income and household size, and if you want to pay more than you’re required, or pay when your payments are zero, that’s fine. It’s a good way to reduce debt and pay less in interest in the long run.

Q. What other new things are in the SAVE Plan?

A. The changes are many. To see them all, in a very easy-to-read Department of Education package, click here.

In general, though, starting next summer (2024), payments for SAVE Plan borrowers with undergraduate loans will be cut in half (reduced from 10% to 5% of income above 225% of the poverty line). 

Borrowers who have undergraduate and graduate loans will pay a weighted average of between 5% and 10% of their income based upon the original principal balances of their loans.

Next summer is when the reduced time for overall forgiveness also kicks in.

Q. You mentioned recertification. Ugh. So I have to fill out some form every year? That’s not my jam.

A. Actually, you don’t (though if you did, wouldn’t it be worth it to save all that money?). Borrowers who agree to disclose their tax information to the Department of Education and their loan service will automatically be recertified, and their payment will be adjusted depending on the income they filed taxes for. This is the method encouraged by the Department of Education, because it’ll streamline things and save everyone a lot of paperwork hassle.

You’ll be notified if your payment is changing, or if it isn’t. 

You can always fill out a form yourself if you want to or don’t want to automatically have your tax information disclosed. Spoiler: You’re going to have to reveal your tax information to the feds and your lender, no matter what, if you want to get SAVE Plan benefits.

Auto-recertification will be available next year, and borrowers who apply for IDR electronically this August or later and agree to disclose their tax info will automatically be recertified when the time comes next year.

Q. This is great for people who are in school or graduating, but I’m just going to college in the fall and looking at taking out loans. What about me? Is this just a one-shot deal?

A. The SAVE plan, unlike the now-defunct student loan forgiveness plan, is a permanent program and future borrowers are eligible. Just remember, you have to apply when it’s time to begin paying your loan.

Q. I was going to get a private student loan, not a federal one, can I still qualify for SAVE?

A. SAVE only applies to federal student loans (see the first question for which ones). Private loans are through private lenders. 

Q. SAVE or no SAVE, I haven’t been paying on my loan since forbearance started in 2020. So what happens now?

A. Right, SAVE or no SAVE, student borrowers have to start repaying their loans in October. 

Interest stopped accumulating on federal student loans in March 2020, and that’s the month that forbearance started, too.

Interest will begin again in September, and payments will start in October.

Your loan servicer will likely be in touch about repayment, if they haven’t been already.

If you’re freaking out about fitting payments into your budget, the Department of Education has created a 12-month “on-ramp” to repayment that begins Oct. 1 and ends Sept. 30, 2024. Qualified borrowers who miss monthly payments won’t be considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

Q. I don’t get how Biden could do this whole SAVE thing after the Supreme Court said his forgiveness plan was unconstitutional.

A. As you know, the Supreme Court determines if application of a law is allowed under the Constitution (this is a simplification, but that’s the basic idea). When a federal department creates or changes a policy, it has to support that change by citing why it’s allowed under law.

The student loan forgiveness plan deemed unconstitutional by the Supreme Court was created under the HEROES Act, which allows the secretary of education to ease hardship for student loan borrowers during a national emergency or other time of crisis. The court determined Biden had overstepped his authority under that law with his forgiveness plan.

The SAVE Plan comes under the Higher Education Act, and the Department of Education has a long-time precedent of setting policy for income-driven repayment under the law.

Q. I heard that students who didn’t graduate still qualify for SAVE. Is this true?

A. Yes, of course. You don’t get a pass on paying back your loans just because you didn’t finish college. Many students don’t finish because of financial reasons, and they don’t have a degree that will, in a lot of cases, help them get a better-paying job, so it’s a double whammy.

About 38.6% of the 43 million people in the U.S. who have student loan balances don’t have a degree six years after they first entered college.

Q. I paid back my student loans, and I don’t think it’s fair that all these other people won’t have to.

A. It’s telling that, according to educationdata.org, 56% of those who strongly supported Biden’s student loan forgiveness plan made less than $50,000 a year; of those who made more than $100,000 a year, only 14.3% supported it.

The reality is, the less money you have, the harder it is to pay back student loans, pay for housing, pay for necessary transportation to get to work or anything else. The average student loan debt growth rate outpaces rising tuition costs by 166.9%, and the cost of going to college is four times what it was in 1987, but household income has increased less than half that.

People who are making payments now and don’t qualify for SAVE, or Biden’s forgiveness plan, are being good consumers and good citizens. But that doesn’t mean people who can’t afford to pay are not. We’ve come a long way from assuming because someone doesn’t make enough money to cover their bills that they have some kind of character flaw, right? 

The irony of student debt is the less foundational wealth you and your family have, the more likely you will be to take out loans to finance your education. But, in many cases, the less money you’ll make than white male counterparts after you graduate. Roll in lending and other financial discrimination against non-white consumers, and it makes for a debt vortex that’s hard to get out of.

We should think of the break that lower-income Americans get on their student loans as similar to other benefits, like the Supplemental Nutrition Assistance Program. It’s a way to help people maintain a livable environment, feed their kids and keep a roof over their head. It helps them better contribute to the community, and means a stronger economy for everyone. While there was a lot of attention on how much student loan forgiveness “costs” Americans, there wasn’t much talk about the boost the economy gets from people who can contribute to it, instead of scrambling for the next meal.

Some of the statistics around student loan debt show that, like so many other things, there are false equivalencies to who owes money, who got help and who is able to pay it back. 

  • 61.4% of female bachelor’s degree holders have federal student loans, compared to 52.2% of male bachelor’s degree holders.
  • Female associate degree holders are 49.9% more likely to borrow federal student loans than male.
  • Female bachelor’s degree holders are paid 74% of what their male peers make, but are more likely to have higher monthly student loan payments.
  • 54% of females have student loan payments in the 75th percentile (meaning their monthly payments are higher than 75% of all monthly payments) compared to 51% of males.
  • It takes women an average of two years longer to pay off their student loans despite making higher average payments than men.
  • Parents of male students are more likely to take out loans on their behalf, and are also more likely to save more money for their child’s education, according to several studies.
  • Black women have the highest average amount of student loan debt.
  • After 12 years in repayment, Black women owe an average of 13% more than they borrowed (in comparison, white women owe 28% less than they borrowed and white men owe 44% less).
  • Student borrowers who identify as LGBTQ+ have an average of $16,000 more in student loan debt than those who do not.
  • Black students are the most likely to borrow federal loans, at 76.1%.
  • Black student borrowers with bachelor’s degrees owe an average $25,000 more than white borrowers.
  • Four years after graduation, 48% of Black student borrowers and 17% of white student borrowers owe more than they initially borrowed.
  • The average student loan debt for someone with an associate degree is $23,500, while bachelor’s degree holders have an average of $21,566.

It became obvious during the COVID-19 pandemic, that a little bit of money for people who are living paycheck to paycheck made a huge difference in their living standards. For instance, the enhanced child tax credit lifting 40 million children out of poverty. Temporarily.

The Biden student loan forgiveness plan would’ve benefited students who received Pell grants for their education, which means they were low-income and behind the eight ball on financial and other privileges to begin with.

The mayors of four Black-majority cities, in a Time magazine op-ed in February, wrote, “When debt burdens are lifted, student borrowers can start new businesses and in turn, create job opportunities for others. They can buy homes for the first time in their lives, pay down other debts such as their credit card bills, and have less reliance on social safety net programs. Reducing educational debt improves mental health, allows families to start saving, and gives more people a realistic chance to stay in the professional field they actually chose and are trained for.”

Mayors Quinton Lucas, of Kansas City, Missouri, Frank Scott Jr., of Little Rock, Arkansas, Steven Reed, of Montgomery, Alabama, Randall Woodfin, of Birmingham, Alabama, and the Public Rights Project, filed a brief joined by 40 local governments and 24 states urging the Supreme Court to consider that everyone benefits when the debt burden on individuals is eased.

Obviously, the court had other ideas, but the philosophy behind their petition remains.

Q. So, is the SAVE Plan is going to solve all of that?

A. No, it won’t. Deep-rooted issues in our culture, education and financial institutions combine to make it harder for some people than others to pay for their education. Aside from the SAVE Plan, Biden has also made some other moves to help low and moderate-income Americans pay for an education including increasing Pell Grants, fixing issues with the Public Service Loan Forgiveness program and approving more than $66 billion in loan cancellation for 2.2 million student loan borrowers who were victims of tuition fraud (most of this at for-profit colleges).


 

About this Author

Maureen Milliken

Maureen Milliken is a contract reporter and content producer for consumer financial agencies. She has worked for northern New England publications, including the New Hampshire Union Leader, for 25 years, and most recently at Mainebiz in Portland, Maine. She can be found on LinkedIn and Twitter.