Is the SAVE Plan Worth It? A Deep Dive for Redditors (and Everyone Else!)

In a word: often, yes. The SAVE (Saving on A Valuable Education) Plan, the newest income-driven repayment (IDR) plan from the U.S. Department of Education, is a game-changer for many borrowers, significantly lowering monthly payments and potentially leading to faster loan forgiveness, but it’s crucial to understand its intricacies to determine if it’s right for your specific situation.

Understanding the SAVE Plan: More Than Just Lower Payments

The SAVE Plan isn’t simply another income-driven repayment option; it represents a fundamental shift in how the government approaches student loan debt. While previous IDR plans also calculated payments based on income and family size, SAVE offers more generous terms that can dramatically reduce your monthly burden. Let’s unpack the key features that make it so potentially advantageous:

How SAVE Calculates Your Payments

Unlike other IDR plans, SAVE uses a higher percentage of the poverty guideline when calculating your discretionary income. This means more of your income is considered “protected” before calculating your monthly payment. Specifically, SAVE protects 225% of the poverty guideline, compared to 150% under the previous REPAYE plan (which SAVE replaced).

Furthermore, the SAVE plan reduces the percentage of discretionary income used to calculate payments. For undergraduate loans, payments are capped at 5% of discretionary income, down from the 10% typically used in other IDR plans. This percentage will also be applied to graduate loans, with some grad loans using weighted averages (see FAQs below).

The Interest Benefit: A Major Perk

Perhaps the most significant benefit of SAVE is its interest subsidy. If your calculated monthly payment doesn’t cover the full amount of accrued interest, the government waives the remaining interest. This means your loan balance won’t grow due to unpaid interest, a common problem with other IDR plans that can trap borrowers in perpetual debt.

Shorter Forgiveness Timelines for Lower Balances

While standard forgiveness timelines under IDR plans are typically 20 or 25 years, the SAVE Plan offers accelerated forgiveness for borrowers with lower initial loan balances. If your original principal balance was $12,000 or less, you’ll receive forgiveness after 10 years of qualifying payments. For every $1,000 borrowed above that, the forgiveness timeline increases by one year, up to a maximum of 20 years for undergraduate loans and 25 years for graduate loans.

Is SAVE Always the Best Option? Caveats to Consider

Despite its numerous benefits, the SAVE Plan isn’t a universally perfect solution. Several factors can make other repayment options, like the Standard 10-year plan or even loan refinancing, more advantageous:

• High Income, Low Debt: If you have a relatively high income and a manageable amount of debt, you might pay off your loans faster and cheaper under a standard repayment plan. The interest you accrue over the longer IDR timeline could outweigh the initial payment savings.
• Public Service Loan Forgiveness (PSLF): If you’re pursuing PSLF, the specific IDR plan you choose is less critical. As long as you make qualifying payments while working for a qualifying employer, your loans will be forgiven after 10 years, regardless of the total amount paid.
• Potential for Income Growth: If you anticipate significant income growth in the near future, your SAVE payments will also increase, potentially making the longer repayment timeline less attractive.
• Spousal Income Considerations: If married, your spouse’s income is considered when calculating your SAVE payment, which can increase your monthly obligation. Consider the impact of filing taxes jointly versus separately.

SAVE Plan FAQs: Addressing Your Burning Questions

Here are answers to frequently asked questions that will help you determine if the SAVE Plan is the right choice for you.

1. What Types of Loans are Eligible for the SAVE Plan?

Most federal student loans are eligible, including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to students, and Direct Consolidation Loans. Parent PLUS Loans and Perkins Loans are not directly eligible but can become eligible by consolidating them into a Direct Consolidation Loan.

2. How Do I Apply for the SAVE Plan?

You can apply for the SAVE Plan online through the StudentAid.gov website. The application process involves providing information about your income, family size, and loan details.

3. Will My Payments Increase Over Time on the SAVE Plan?

Yes, your payments will likely increase as your income rises. However, the SAVE Plan’s interest subsidy ensures that your loan balance won’t balloon due to unpaid interest, even if your payments are lower than the accruing interest.

4. How Does the SAVE Plan Impact My Credit Score?

Enrolling in the SAVE Plan itself won’t negatively impact your credit score. However, if your payments are lower than they would be under a standard repayment plan, it will take longer to pay off your loans, which could impact your credit utilization ratio and potentially your credit score in the long run.

5. What Happens If I Don’t Recertify My Income Annually?

You’re required to recertify your income annually to remain on the SAVE Plan. If you fail to recertify, your payments will likely revert to the standard 10-year repayment plan amount, and you’ll lose the benefits of the SAVE Plan.

6. Can I Switch to the SAVE Plan If I’m Already on Another IDR Plan?

Yes, you can switch to the SAVE Plan from another IDR plan. You’ll need to submit a new application and recertify your income. Consider the implications of switching, as restarting the forgiveness timeline may not always be the best option.

7. How Does the SAVE Plan Handle Married Borrowers?

If you’re married and file taxes jointly, your spouse’s income will be considered when calculating your SAVE payment. If you file taxes separately, only your income will be considered. Filing separately might result in a lower SAVE payment but could have other tax implications.

8. Does the SAVE Plan Impact Public Service Loan Forgiveness (PSLF)?

No, the SAVE Plan is a qualifying repayment plan for PSLF. Enrolling in the SAVE Plan can potentially lower your monthly payments while you work towards PSLF forgiveness.

9. What Happens If I Make Extra Payments on the SAVE Plan?

Making extra payments on the SAVE Plan will reduce your loan balance faster and potentially shorten your repayment timeline, but it won’t accelerate your forgiveness timeline if you’re pursuing IDR forgiveness.

10. How Does the SAVE Plan Differ from the REPAYE Plan?

The SAVE Plan replaced the REPAYE plan, offering more generous terms, including a higher income protection threshold, a lower discretionary income percentage, and the interest subsidy. If you were previously on REPAYE, you were automatically switched to SAVE.

11. What If I Have Both Undergraduate and Graduate Loans? How Are Payments Calculated?

For borrowers with both undergraduate and graduate loans, the SAVE plan uses a weighted average based on the original principal balances of each loan type to determine your payment percentage. The percentage could fall between 5% and 10%, depending on the mix of loan types.

12. Are There Any Tax Implications to Student Loan Forgiveness Under the SAVE Plan?

Currently, student loan forgiveness under the SAVE Plan is not considered taxable income at the federal level through 2025. However, some states may tax forgiven student loan debt. Consult with a tax professional to understand the tax implications in your specific state.

The Verdict: Weigh Your Options Carefully

The SAVE Plan offers substantial benefits to many borrowers, particularly those with low incomes and high debt. However, it’s crucial to carefully evaluate your individual circumstances and compare the SAVE Plan to other repayment options before making a decision. Consider using the loan simulator on the StudentAid.gov website to estimate your potential payments under different plans. By understanding the intricacies of the SAVE Plan and its potential drawbacks, you can make an informed choice that aligns with your financial goals and sets you on the path to student loan freedom.