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What to know about SAVE, the new income-driven repayment plan for student loans

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Viorel Kurnosov/Getty Images

After three years of paused payments and interest on federal student loans, borrowers are required to begin repaying their student debt in October 2023.

In an effort to provide a smooth transition back into repayment, the government introduced SAVE, the new income-driven repayment plan that aims to:

  • Shield more of your income from your loan payment calculation
  • Reduce the percentage of your income you have to pay
  • Prevent unpaid interest from increasing your loan balance

Here's how each of these items works and how the new repayment plan can help you save on your student loans.

How do income-driven repayment plans work?

IDR plans have been around for a while. They aim to reduce the strain of repaying your federal student loans by basing your monthly payment on how much money you make. Unlike traditional payment configurations, the total amount you borrowed isn't a factor.

Four IDR plans were established previously:

  • Revised Pay As You Earn Repayment (REPAYE)
  • Pay As You Earn Repayment (PAYE)
  • Income-Based Repayment (IBR)
  • Income-Contingent Repayment (ICR)

Each plan uses a different formula for determining your monthly payment, but all aim to give you a more affordable payment than you otherwise might have had under the standard repayment plan. These IDR plans have other benefits as well, such as payment caps and forgiveness after a number of years.

SAVE vs REPAYE: The differences

Saving on a Valuable Education (SAVE) was announced in mid-2023 as a replacement for the current REPAYE plan. For most borrowers, SAVE results in lower payments and more debt forgiveness through changes in how your income is included in the repayment formula, what goes toward payments, and how unpaid interest is handled.

Here are the key factors to know as REPAYE changes to SAVE:

Less of your income is included in the payment formula

Income-driven repayment plans are designed to exclude a portion of your income from the payment calculation. The excluded portion is based on the federal poverty level.

  • For 2023, the federal poverty level for a family of four is $30,000.
  • Previously, REPAYE had an exclusion of 150% of the poverty level, which would be $45,000 for a family of four in 2023.
  • SAVE increases the exclusion to 225%, which would be $67,500 for a family of four in 2023.

Another change with the SAVE plan is that if you're married but file taxes separately from your spouse, their income is excluded from your payment calculation.

A lower percentage of your included income goes toward payments

The amount of your income above the poverty level for your family size is called your discretionary income. IDR plans calculate your payment as a percentage of this number.

Under REPAYE, loan payments were 10% of your discretionary income.

With SAVE, payments for graduate loans are still 10% of your discretionary income, but undergraduate loan payments are reduced to 5% of your discretionary income. If you have a mix, your payment percentage is a weighted average.

Unpaid interest is no longer added to your balance

In some cases, IDR payments can end up being an amount that doesn't cover the monthly interest charged on your loan.

Under previous plans, this interest was added back to your balance and capitalized. So your balance could increase and grow interest on top of interest even if you'd been making steady payments.

Under the new SAVE plan, as long as you make your monthly payment, your loan balance won't grow due to unpaid interest.

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A close up of a student using a calculator and studying in a public library.

Want more ideas for tackling those payments?

While the value of education is priceless, student loan debt you've accrued can follow you long into the future. If you're looking for ways to pay off your loans faster, while managing your other financial priorities, consider these 8 strategies.

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When does the new IDR plan take effect?

Some aspects of SAVE are already in effect as of mid-2023, including:

  • Increasing the income exclusion to 225% of the federal poverty level
  • Excluding spousal income
  • No longer capitalizing unpaid interest

All other parts of the new IDR should be implemented by July 1, 2024, including the payment reduction from 10% to 5% of discretionary income for undergraduate loans. Other benefits that should become available include:

  • Complete forgiveness if you borrowed $12,000 or less and have made at least 10 years of payments (Loan forgiveness can extend up to 20 years for undergraduates and 25 years for graduates.)
  • The ability to make up previously missed payments for deferment or forbearance periods and have them count toward forgiveness
  • Previously uncounted deferment and forbearance payments apply toward forgiveness
  • New consolidations generally won't mean you lose progress toward forgiveness

How do I enroll in SAVE?

All student borrowers in repayment can enroll in the SAVE plan. Borrowers who already are enrolled in REPAYE are automatically moved to SAVE. Other borrowers need to apply for an IDR plan and select the REPAYE plan or the SAVE plan when it becomes available.

Other student loan repayment strategies

The new SAVE plan isn't the only thing you need to know about loan repayment. There are other student loan strategies to consider, too.

Employer student loan matching

The SECURE Act 2.0, passed in 2022, allows your employer to provide you with a matching contribution for your student loan payment. Find out if your employer offers this, and let them know you'd like to see it if they don't.

Student loan forgiveness

The Supreme Court may have struck down the big student debt forgiveness plan, but you can have your loans forgiven in other ways.

Public Service Loan Forgiveness (PSLF) is a popular option that provides forgiveness to those who make payments for 10 years while working for a qualified employer.

The U.S. Department of Education also is working through payment count adjustments for more than 3.6 million borrowers. This could get many borrowers much closer to forgiveness under the PSLF program, with some qualifying immediately.

Refinancing student loans

You may want to think about refinancing your student loans if you can get a lower interest rate. Before refinancing federal loans with a private lender, however, realize that you may give up certain benefits, such as participating in the new SAVE plan.

Student loan scams

Scammers also have heard about the new SAVE plan and started their own efforts to benefit from possible confusion about implementation. Be careful with unsolicited offers to help you manage your loan payments or apply for SAVE, and don't give out your federal student aid or other personal information.

Paying down your student loans

The new SAVE plan may dramatically reduce your payments by increasing the income exclusion, lowering the payment percentage and forgiving unpaid interest. These effects are cumulative and can lead to big savings.

Check out the student loan services from Thrivent Credit Union to learn more about borrowing and refinancing. Experienced lenders can answer your questions. You also can reach out to a Thrivent financial advisor to discuss how balancing "good debt"—like your education loans—and saving for your future are possible as part of a wider financial strategy.