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What Is the SAVE Plan and How Does It Work?

The SAVE Plan is a federal income-driven repayment plan for federal student loans. The full name is the Saving on a Valuable Education Plan. It became available on August 1, 2023, and replaced the PAYE (Pay As You Earn) plan as the federal government's newest repayment option.

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Income-driven repayment plans calculate your monthly student loan payment based on how much money you earn each year, rather than using a standard 10-year payment schedule. The SAVE Plan was designed to provide lower monthly payments compared to other income-driven options. According to the U.S. Department of Education, borrowers on the SAVE Plan pay 5% of their discretionary income toward their loans, down from 10% under the PAYE plan.

Here's how the SAVE Plan calculates your payment: First, the plan determines your discretionary income. Discretionary income is the difference between your annual income and 225% of the federal poverty line for your family size and state. For example, in 2024, the federal poverty line for a single person is approximately $14,580. So 225% of that equals about $32,805. If you earn $40,000 per year, your discretionary income would be $7,195. Your monthly payment would be roughly $300 (5% of $7,195 divided by 12 months).

The SAVE Plan also includes what's called "interest subsidy" for borrowers with lower incomes. If your monthly payment doesn't cover the interest that accrues on your loans, the government pays the unpaid interest for you—but only for undergraduate loans. This means your loan balance won't grow if you can't afford your full interest charges.

Another feature is loan forgiveness after 20 years of payments if you originally borrowed $12,000 or less for undergraduate education. Borrowers who borrowed more may receive forgiveness after 25 years.

Takeaway: The SAVE Plan bases monthly payments on your actual income and provides interest subsidy for many borrowers, potentially making student loan repayment more manageable when your earnings are lower.

Who Might Consider the SAVE Plan

Not every borrower should use the SAVE Plan, but it may be worth learning about for certain situations. The plan tends to work best for people with lower incomes, high loan balances relative to their income, or both.

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Consider someone who graduated with $80,000 in federal student loans but earns $35,000 per year. Under the standard 10-year repayment plan, the monthly payment would be roughly $920. Under SAVE, with $35,000 in annual income, the payment might be around $60-80 per month. That's a significant difference for a recent graduate early in their career.

The SAVE Plan may also benefit borrowers pursuing careers in public service. While the SAVE Plan itself isn't a public service loan forgiveness program, borrowers working for government agencies or nonprofit organizations can combine SAVE with the Public Service Loan Forgiveness (PSLF) program. PSLF forgives the remaining balance after 120 qualifying payments, which is 10 years. Some borrowers using SAVE for PSLF might pay even less before forgiveness than they would on other plans.

Parents who borrowed through the Parent PLUS loan program should note that SAVE doesn't apply to Parent PLUS loans. However, parents can consolidate Parent PLUS loans into Federal Direct Consolidation Loans and then enroll in SAVE. This is one of the few ways Parent PLUS borrowers can access income-driven repayment.

Borrowers with very low incomes or temporary income loss may find the $0 payment option useful. On SAVE, if your income falls below the poverty line, your required monthly payment may be $0. You can still make payments if you choose, which helps reduce your balance faster, but you won't be in default for non-payment.

The SAVE Plan may be less beneficial for borrowers who are already on track to pay off loans within 10 years, or for those with low loan balances relative to their income. These borrowers might pay less overall using other repayment plans or the standard plan.

Takeaway: The SAVE Plan works best for borrowers with lower incomes or high loan-to-income ratios, and particularly for those who can't afford standard payment amounts or who are working toward public service forgiveness.

Key Information About SAVE Plan Payments and Costs

Understanding what you'll actually pay under SAVE requires looking at several numbers: your income, family size, state, and total loan balance. The federal poverty line changes yearly, which means your payment can change year to year even if your income stays the same.

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For 2024, here are approximate discretionary income thresholds. A single person with zero income has $0 discretionary income and would pay $0 monthly. A single person earning $32,805 (225% of the 2024 poverty line) also pays $0. A single person earning $40,000 has roughly $7,195 in discretionary income and would pay about $300 monthly. A single person earning $75,000 has roughly $42,195 in discretionary income and would pay around $175 monthly. A married couple filing taxes jointly with two children and combined income of $100,000 would have lower discretionary income than a single person at the same earnings, resulting in lower payments.

One important feature: SAVE includes the interest subsidy mentioned earlier. Let's say you have $50,000 in undergraduate federal loans and your payment is only $100 per month. If the interest accruing monthly is $150, you're short $50. Under SAVE, the government covers that $50, so your loan balance doesn't increase due to unpaid interest. This subsidy only applies to undergraduate loans and only when your payment is insufficient to cover interest.

The SAVE Plan requires you to report your income annually. You typically do this by completing a form through your loan servicer's website or by phone. Your servicer uses this information to recalculate your payment for the next year. If your income decreases, your payment decreases. If your income increases, your payment increases.

You'll also pay any accrued interest when you eventually pay off the loan or switch to a different plan. Interest doesn't disappear—it either gets paid through monthly payments or capitalized (added to your principal) at certain points.

It's worth noting that forgiveness under SAVE (after 20-25 years) would be a taxable event in the year forgiveness occurs. If you owe $150,000 that gets forgiven, you may owe federal income tax on that $150,000 as if it were income that year. This is a consideration for long-term planning.

Takeaway: SAVE payments are affordable for lower-income borrowers, interest subsidy prevents balance growth under certain conditions, and you report income yearly to recalculate payments.

How to Obtain and Review Your SAVE Plan Information Guide

The SAVE Plan information guide is a free resource produced by the U.S. Department of Education. Several places offer this guide online and in print format.

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The Federal Student Aid website (studentaid.gov) publishes information about all federal repayment plans, including SAVE. You can read about SAVE, see payment examples, and find links to the official guide. This is the primary government source and contains current information.

Your federal student loan servicer also provides information about SAVE. Your servicer is the company that processes your loan payments and manages your account. You receive statements from your servicer by mail or email. You can log into your servicer's website and look for information about repayment plans. Most servicers have comparison tools that show estimated payments under different plans based on your actual loan situation.

Nonprofit organizations focused on student lending also create guides and resources about SAVE. The National Association of Student Financial Aid Administrators (NASFAA) and similar organizations publish educational materials. These aren't official government documents, but they can offer additional explanation and perspective.

When reviewing any guide, look for these sections: how income is calculated, what counts as discretionary income, how the 225% poverty line factor works, annual income reporting requirements, what happens if your income changes, how to estimate your