Biden's New SAVE Plan: What It Means for Your Student Loans

Federal student loan repayment has changed significantly with the introduction of the Saving on a Valuable Education (SAVE) plan. If you are looking to lower your monthly bills, this income-driven repayment option offers higher income exemptions and interest subsidies that could drop your payment to zero dollars.

Understanding the Basics of the SAVE Plan

The SAVE plan is a federal income-driven repayment (IDR) program introduced by the Biden-Harris administration. It officially replaced the Revised Pay As You Earn (REPAYE) plan. Like other IDR plans, SAVE calculates your monthly student loan payment based on your income and family size rather than your total loan balance.

However, SAVE changes the math in favor of the borrower. Under older plans, the government defined your discretionary income as the money you made above 150% of the federal poverty guideline. The SAVE plan raises that exemption to 225%.

Because of this higher threshold, a single borrower earning about $32,800 or less in 2024 qualifies for a $0 monthly payment. For a family of four, the 225% threshold sits around $70,200. If your income falls below these exact numbers, you do not have to make a payment, and you remain in good standing with your loan servicer.

Lower Monthly Payments for Undergraduate Loans

A major provision of the SAVE plan went into effect in July 2024, specifically targeting borrowers with undergraduate debt. Under the previous REPAYE plan, borrowers paid 10% of their discretionary income toward their loans. The SAVE plan cuts that rate in half for undergraduate loans.

If you only hold undergraduate student loans, your monthly payment is capped at 5% of your discretionary income. If you only hold graduate loans, your payment remains at 10%.

For borrowers holding a mix of both undergraduate and graduate loans, the Department of Education uses a weighted average. For example, if you borrowed $20,000 for your bachelor’s degree and $20,000 for your master’s degree, your payment would be calculated at 7.5% of your discretionary income. This adjustment alone has saved many borrowers hundreds of dollars a month.

The 100% Interest Subsidy

One of the most frustrating aspects of federal student loans for many borrowers is watching their balances grow even when they make on-time payments. This happens when the required monthly payment is not large enough to cover the new interest that accrues each month.

The SAVE plan eliminates this problem entirely. If you make your calculated monthly payment, the government pays the rest of the accrued interest for that month.

For instance, if your loan accumulates $100 in interest each month, but your calculated SAVE payment is only $40, the government covers the remaining $60. Your total loan balance will never increase as long as you are enrolled in the plan and make your required payments. Even if your calculated payment is $0, the government subsidizes 100% of the interest.

Accelerated Loan Forgiveness

Standard income-driven repayment plans forgive any remaining loan balance after 20 or 25 years of qualifying payments. The SAVE plan offers a much faster route to forgiveness for borrowers who took out smaller amounts of debt.

If your original principal balance was $12,000 or less, your loans are forgiven after just 10 years of payments. For every additional $1,000 you borrowed above that $12,000 mark, the timeline increases by one year.

For example, if your original balance was $14,000, you will reach forgiveness after 12 years of payments. The maximum repayment period is capped at 20 years for undergraduate loans and 25 years for graduate loans.

Current Legal Challenges and Administrative Forbearance

It is highly important to understand the current legal status of the SAVE plan. In the summer of 2024, the 8th U.S. Circuit Court of Appeals issued an injunction that blocked the Department of Education from implementing key parts of the SAVE plan. Several states argued that the administration overstepped its authority by creating the program.

Because of this legal block, the Department of Education placed all borrowers currently enrolled in the SAVE plan into an administrative forbearance. During this specific forbearance period, your loans will not accrue any interest, and you are not required to make monthly payments.

However, there is a catch. The months spent in this legal-related administrative forbearance do not count toward Public Service Loan Forgiveness (PSLF) or standard IDR forgiveness. Borrowers waiting for the courts to make a final ruling are temporarily stuck in limbo regarding their forgiveness timelines.

How to Apply and Eligibility Requirements

Most federal student loans qualify for the SAVE plan. Eligible loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate students, and Direct Consolidation Loans. Parent PLUS loans are strictly excluded from this plan.

Because of the ongoing legal challenges, the online application tool on StudentAid.gov was temporarily paused in late 2024. Borrowers who still want to apply for the SAVE plan must download a PDF application from the Federal Student Aid website and upload it directly to their specific loan servicer, such as Mohela, Nelnet, or Aidvantage.

Frequently Asked Questions

Will my balance grow on the SAVE plan? No. The SAVE plan includes a 100% interest subsidy. As long as you make your monthly required payment (even if that payment is $0), the government covers all unpaid monthly interest. Your balance will not increase.

Do Parent PLUS loans qualify for SAVE? No. Parent PLUS loans are not eligible for the SAVE plan. If you have Parent PLUS loans, your only income-driven option is the Income-Contingent Repayment (ICR) plan, and that is only available if you consolidate the loans into a Direct Consolidation Loan.

What happens while the SAVE plan is blocked by the courts? Borrowers already enrolled in SAVE have been placed in an interest-free administrative forbearance. You do not have to make payments, and your balance will not grow. However, these months will not count toward PSLF or IDR forgiveness.

How do I calculate my discretionary income for this plan? Your discretionary income under SAVE is the difference between your Adjusted Gross Income (AGI) and 225% of the poverty guideline for your family size and state. You can find your exact AGI on your most recent federal tax return.