The Department of Education (ED) on Monday released its final rule on the Saving on Valuable Education (SAVE) repayment plan. The final rule is a result of negotiated rulemaking conducted in the fall and winter of 2021.
The SAVE plan is a rebranding of the existing REPAYE plan, as opposed to an entirely new plan, and the names will be used interchangeably while ED implements the changes to the law. Borrowers currently in REPAYE will have their monthly payments and other loan terms adjusted automatically to match those of the SAVE plan in accordance with ED’s planned implementation dates, detailed below.
Current borrowers are eligible to switch payment plans to take advantage of the SAVE terms. New borrowers entering repayment will only have the option of enrolling in the standard repayment plan, the REPAYE/SAVE plan, or the Income-Based Repayment (IBR) plan. The other income-driven plans (Income-Contingent Repayment and Pay As You Earn) will be sunsetted as of July 1, 2024, with only borrowers currently enrolled in those plans permitted to remain on them.
The SAVE plan will be available to both Direct Loan borrowers and Federal Family Education Loan Program (FFELP) borrowers who consolidate their loans into Direct loans. SAVE would not be available to Parent PLUS borrowers, including for consolidation loans that included a Parent PLUS.
A few provisions of the SAVE plan are set for early implementation. ED plans to make those provisions effective this summer, before loan repayments resume following the pandemic payment pause.
Higher income protection: The amount of income protected from payments on the SAVE plan will rise to 225% of the federal poverty guideline (from 150% for PAYE and IBR and 100% for ICR). This change would result in a $0 monthly payment for a single borrower who earned less than $32,805; or for a family of four making less than $67,500
Elimination of negative amortization: ED will forgive the amount of unpaid interest for each month in which a borrower’s payment does not fully cover the accrued interest for that month.
Exclusion of spousal income: Married borrowers who file their taxes separately will no longer have their spouse’s income factored into their monthly payment calculation for the SAVE plan. These borrowers will also have their spouse excluded from their family size when selecting the federal poverty guideline figure to use for calculating the monthly payment amount.
Credit toward maximum time frame to forgiveness: Borrowers under all IDR plans, not just SAVE, will receive credit toward forgiveness for certain periods of deferment. Those include cancer deferment, deferments for military service, and economic hardship deferment, among others.
Most other provisions of the SAVE plan will be effective July 1, 2024, including:
Monthly payments calculated using half the current percentage of discretionary income for undergraduate borrowers, from 10% to 5%
Loans borrowed for education other than undergraduate studies will continue to have payments calculated based on 10% of discretionary income
Borrowers with a combination of undergraduate and other loans will have a monthly payment calculated based on a weighted average of their loans’ original principal balances
Shorter time to forgiveness
The maximum time frame for repayment under the SAVE plan is 20 years for undergraduate debt and 25 years for debt incurred for graduate or professional study
Low-balance borrowers can see forgiveness in as few as 10 years if their original principal balance was less than $12,000
Each $1,000 borrowed above $12,000 adds one year to repayment until borrowers reach the 20 or 25-year cap.
A borrower who made payments under the IBR plan and successfully completed rehabilitation of a defaulted loan may choose SAVE when the loan is returned to good status if the borrower is otherwise eligible for SAVE and their monthly payment under SAVE is equal to or less than their payment on IBR.
A borrower who makes 60 monthly payments on SAVE after July 1, 2024, would not have the option to switch from SAVE to IBR.
In addition to the new SAVE repayment plan, several new or changed regulations apply to all existing IDR plans and are also effective July 1, 2024, including:
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 can prove they qualified for a $0 payment when they entered default will be automatically moved from default status to good standing.
Payments made under an approved bankruptcy plan will count toward IDR forgiveness.
Borrowers will receive credit toward forgiveness for payments made prior to consolidation, based on a weighted average of the principal balances of the underlying consolidated loans rather than having their progress toward forgiveness reset upon consolidation.
Borrowers can make catch-up payments equal to or greater than their IDR payment for periods of deferment or forbearance that don’t otherwise qualify for credit toward forgiveness.
A borrower who has provided approval for the disclosure of their tax information and has not made a scheduled payment for at least 75 days or is in default on the loan and is not subject to a federal offset (by which the Department of the Treasury withholds income tax refund payments), administrative wage garnishment, or judgment secured through litigation, may automatically be enrolled in the IDR plan that results in the lowest monthly payment.
Read Today’s News for updates on the SAVE plan, including updates on implementation of provisions slated for early implementation and progress toward full implementation in 2024.
Publication Date: 7/12/2023