Biden SAVE Program: How this new plan compares to other student loan repayment programs?

The upcoming Saving on a Valuable Education (SAVE) Plan is set to replace the existing Revised Pay As You Earn (REPAYE) Plan, and borrowers already on REPAYE will automatically transition to the new SAVE Plan.

Similar to other income-driven repayment (IDR) plans, the SAVE Plan calculates your monthly payment based on your income and family size. It is designed to offer the lowest monthly payments among all available IDR plans, catering to a wide range of student borrowers.

For those holding federal student loans, there are multiple repayment plans to consider. Here’s a comparison of these options.

1. Standard Repayment Plan

Eligibility: All borrowers.

Method: Fixed payments over a 10-year period.

Beneficiaries: Borrowers aiming for quicker repayment to minimize interest charges.

Not beneficial for: Borrowers interested in Public Service Loan Forgiveness.

2. Graduated Repayment Plan

Eligibility: All borrowers.

Method: Initial lower payments that gradually increase over a 10-year period.

Beneficiaries: Borrowers expecting rising income, keen to pay off loans quickly.

Not beneficial for: Borrowers interested in Public Service Loan Forgiveness.

3. Extended Repayment Plan

Eligibility: All borrowers, except those with federal direct loan and Federal Family Education Loan (FFEL) balances below $30,000.

Method: Fixed or graduated payments over up to 25 years.

Beneficiaries: Borrowers with larger loan amounts needing smaller monthly payments.

Not beneficial for: Borrowers interested in Public Service Loan Forgiveness or avoiding extra interest.

4. Pay As You Earn Repayment Plan (PAYE)

Eligibility: Borrowers with a direct loan disbursement after Oct. 1, 2011.

Method: Monthly payments at 10% of discretionary income, capped at Standard Repayment amount.

Beneficiaries: Those requiring a low monthly payment or interested in Public Service Loan Forgiveness.

Not beneficial for: Borrowers with fluctuating income.

5. Revised Pay As You Earn Repayment Plan (REPAYE)

Eligibility: Direct loan borrowers with eligible loans; not applicable to Parent PLUS loans.

Method: 10% of discretionary income monthly payments.

Beneficiaries: Direct loan borrowers needing low monthly payments, also interested in Public Service Loan Forgiveness.

Not beneficial for: Married couples filing jointly with higher combined income.

6. Income-Based Repayment Plan (IBR)

Eligibility: Borrowers with various loan types and high debt relative to income.

Method: Payments at 10% or 15% of discretionary income, limited to 10-year Standard Repayment amount. Eligible for Public Service Loan Forgiveness after 20 or 25 years.

Beneficiaries: High debt holders needing lower monthly payments or aiming for Public Service Loan Forgiveness.

Not beneficial for: Borrowers able to allocate more than 10% or 15% income to repayment.

7. Income-Contingent Repayment Plan (ICR)

Eligibility: Direct loan borrowers with eligible loans; not applicable to Parent PLUS loans.

Method: Payments at 20% of discretionary income or a fixed amount based on income, whichever is less.

Beneficiaries: Borrowers affording higher monthly payments than Standard Repayment, interested in Public Service Loan Forgiveness.

Not beneficial for: Borrowers with other loan types or those filing jointly in higher tax brackets.

8. Income-Sensitive Repayment Plan

Eligibility: Federal Family Education Loan borrowers.

Method: Payments based on annual income over a 15-year period.

Beneficiaries: FFEL borrowers seeking lower monthly payments compared to Standard or Graduated Repayment.

Not beneficial for: Borrowers considering Public Service Loan Forgiveness.

The upcoming SAVE Plan is set to bring forth additional benefits by July 2024, aiming to simplify repayment and reduce payments. These benefits encompass:

1. Undergraduate loan payments will be halved, reducing from 10% to 5% of income above 225% of the poverty line. For borrowers with both undergraduate and graduate loans, payments will be a weighted average ranging between 5% and 10% based on original principal balances.

2. Borrowers with original principal balances up to $12,000 will receive balance forgiveness after 10 years of payments. The forgiveness period extends by one year for every additional $1,000 borrowed. For instance, with a $14,000 balance, forgiveness will occur after 12 years, with past and future payments counting.

3. Consolidation won’t hinder progress toward forgiveness. Borrowers consolidating loans will receive credit based on a weighted average of payments from the loans being consolidated.

4. Forgiveness credit will be automatically given for certain deferment and forbearance periods.

5. Borrowers can opt for “catch-up” payments to receive credit for other deferment or forbearance periods.

6. Those 75 days late will be enrolled in IDR automatically if they’ve permitted secure tax data access to the Department of Education.