SAVE Plan: Complete guide to the new IDR option
The Saving on a Valuable Education (SAVE) Plan is an income-driven repayment (IDR) option designed to significantly lower monthly student loan payments and prevent unpaid interest from increasing your balance. Replacing the former REPAYE plan, SAVE offers the most generous repayment terms for federal borrowers, including a new formula that can reduce payments to $0 for many and accelerate loan forgiveness for those with smaller original balances.
Whether you are a recent graduate managing your own debt or a parent helping navigate repayment options, understanding the SAVE Plan is critical for long-term financial health. This guide covers everything you need to know about eligibility, how payments are calculated, the unique interest benefits that protect your balance, and the steps required to enroll.
You will also learn about the current legal status of the program, how it compares to other repayment options, and specific strategies to maximize its benefits. By the end of this article, you will have a clear roadmap to determine if the SAVE Plan is the right tool to help you achieve financial freedom.
Context: what is the SAVE Plan and why it exists
According to StudentAid.gov, the SAVE Plan was officially launched in August 2023 by the Department of Education to address long-standing issues with student loan repayment. It replaced the Revised Pay As You Earn (REPAYE) plan, transforming it into a more affordable option for millions of borrowers. Unlike previous plans established by Congress, SAVE was created through regulatory action to provide immediate relief to borrowers struggling with high debt-to-income ratios.
The plan was developed to solve specific shortcomings of earlier IDR options. Under older plans, borrowers often saw their balances grow due to unpaid interest even while making required payments. Additionally, the discretionary income formulas often resulted in monthly payments that were still too high for many families to manage comfortably. SAVE adjusted these formulas to protect a larger portion of a borrower’s income and introduced a subsidy to stop interest from ballooning.
While the plan has faced legal challenges affecting its implementation (discussed in detail later), it remains the most significant overhaul of the federal repayment system in decades. For most undergraduate and graduate borrowers with Direct Loans, it represents the lowest monthly payment option available within the federal system.
Why it matters
- Lower Monthly Costs: Payments are calculated using a more generous formula, often resulting in significantly lower bills than other plans.
- Interest Protection: The government covers 100% of unpaid interest, ensuring your balance never grows as long as you make your scheduled payments.
- Faster Freedom: Borrowers with original balances of $12,000 or less may see their loans forgiven in as few as 10 years.
- Manageability: It is designed specifically to align payments with your actual financial reality, not just your total debt.
Is the SAVE Plan right for you? Quick eligibility checklist
Before diving into the math, it is important to determine if you are eligible for the SAVE Plan. While most federal borrowers qualify, there are specific exclusions to be aware of. Use this checklist to quickly assess if this plan is a viable option for your financial situation.
- You have Direct Loans: Your loans must be under the Direct Loan Program (Subsidized, Unsubsidized, or Graduate PLUS).
- You do not have Parent PLUS Loans: Parent PLUS loans are not eligible for SAVE, even if consolidated, unless they were consolidated under very specific temporary waivers that have largely expired. However, standard Direct Consolidation Loans that paid off Parent PLUS loans are generally only eligible for the ICR plan, not SAVE.
- Your income is modest relative to your debt: You benefit most if your income is low to moderate compared to your loan balance.
- You want the lowest possible payment: For the vast majority of borrowers, SAVE offers the lowest monthly obligation.
- You are concerned about interest growth: You want to ensure your loan balance doesn’t increase due to unpaid interest.
- You borrowed for undergraduate study: The plan offers preferential rates (5%) specifically for undergraduate loans.
- You are pursuing Public Service Loan Forgiveness (PSLF): Payments made under SAVE qualify toward the 120 payments required for PSLF.
If you have older FFEL or Perkins loans, you may need to consolidate them into a Direct Consolidation Loan to qualify. You can learn more about that process in our guide to loan consolidation. Note that Parent PLUS borrowers have more limited options, which are detailed in our Parent PLUS repayment guide.
How SAVE calculates your monthly payment
The SAVE Plan uses a specific formula to determine your monthly payment based on your “discretionary income.” Understanding this math helps you predict your costs and see why this plan is often cheaper than alternatives.
The Formula: According to StudentAid.gov, your discretionary income is defined as the difference between your Adjusted Gross Income (AGI) and 225% of the U.S. federal poverty guideline for your family size. This is a major improvement over other IDR plans, which typically protect only 150% of the poverty guideline.
The Payment Rate: Once your discretionary income is determined, your annual payment is calculated as:
- 5% of discretionary income for loans taken out for undergraduate study.
- 10% of discretionary income for loans taken out for graduate or professional study.
- A weighted average (between 5% and 10%) if you have both undergraduate and graduate loans.
As reported by the Department of Health and Human Services, as of January 2025, the federal poverty guideline for a single person in the contiguous U.S. is $15,060 (using 2024 guidelines until 2025 updates are fully integrated). This means 225% of that amount is $33,885. If you earn less than this threshold, your monthly payment is $0.
Let’s look at a concrete example. Imagine a single borrower with an AGI of $40,000 and $30,000 in undergraduate loans.
- Determine Protected Income: $15,060 (Poverty Line) × 225% = $33,885.
- Calculate Discretionary Income: $40,000 (Income) – $33,885 (Protected) = $6,115.
- Apply Payment Rate: $6,115 × 5% (Undergraduate rate) = $305.75 per year.
- Monthly Payment: $305.75 ÷ 12 = $25.48 per month.
If this same borrower were on the standard PAYE plan (10% of income above 150% of the poverty line), their payment would be approximately $145 per month. The difference is substantial.
| Plan | Income Protection | Payment Rate | Eligible Loan Types |
|---|---|---|---|
| SAVE | 225% of poverty line | 5% undergrad / 10% grad | Direct Loans (No Parent PLUS) |
| PAYE | 150% of poverty line | 10% of discretionary income | Direct Loans only |
| IBR | 150% of poverty line | 10% or 15% of discretionary income | Direct & FFEL Loans |
Source: StudentAid.gov (Program terms effective as of July 2024)
To see exactly what you would pay, you can use the Federal Student Aid Loan Simulator.
Key benefits unique to the SAVE Plan
Beyond the lower monthly payment calculation, the SAVE Plan introduces several unique benefits that distinguish it from previous income-driven options. These features are designed to prevent the “debt trap” where balances grow despite regular payments.
Perhaps the most valuable feature of SAVE is the interest benefit. According to StudentAid.gov, on this plan, if your calculated monthly payment is not enough to cover the interest that accrues that month, the government subsidizes 100% of the remaining interest. This means your loan balance will never grow due to unpaid interest as long as you make your scheduled payments.
For example, if $50 of interest accumulates each month but your calculated payment is only $30, the Department of Education covers the remaining $20. Under previous plans, that $20 would have been added to your balance.
By raising the income protection threshold to 225% of the federal poverty guideline, SAVE ensures that no borrower making less than roughly $16 per hour (for a single person) has to make a payment. This protects a larger share of your earnings for basic necessities like rent, food, and utilities.
SAVE is the only IDR plan that calculates payments at 5% of discretionary income for undergraduate loans. All other plans charge at least 10%. This effectively cuts payments in half for borrowers with only undergraduate debt.
Under SAVE, unpaid interest is not capitalized (added to your principal balance) when you leave the plan or fail to recertify on time, except in very specific statutory instances. You can read more about how this protects you in our guide to interest capitalization.
According to Sandy Baum, a senior fellow at the Urban Institute, “Borrowing is not inherently bad; the question is how much, and under what terms.” The SAVE Plan significantly improves those terms, making federal borrowing safer and more manageable for students and families.
Forgiveness timeline under SAVE
Like other IDR plans, SAVE offers loan forgiveness after a set repayment period. However, according to StudentAid.gov, it introduces a unique “accelerated” timeline for borrowers with smaller initial balances.
Standard Forgiveness:
- 20 Years: If you borrowed only for undergraduate study.
- 25 Years: If you have any loans for graduate or professional study.
Accelerated Forgiveness for Small Balances:
If your original principal balance was $12,000 or less, you qualify for forgiveness after just 10 years of payments. For every additional $1,000 borrowed above $12,000, one year is added to the forgiveness timeline, up to the maximum of 20 or 25 years.
This benefit is based on the original amount you borrowed, not your current balance. It applies retroactively, meaning time you have already spent in repayment counts toward this timeline.
| Original Principal Balance | Time to Forgiveness |
|---|---|
| $12,000 or less | 10 years |
| $13,000 | 11 years |
| $14,000 | 12 years |
| $15,000 | 13 years |
| $20,000 | 18 years |
| $22,000+ (Undergrad) | 20 years (Max) |
Source: StudentAid.gov (Forgiveness terms as of July 2024)
It is important to note that periods of deferment and forbearance generally do not count toward forgiveness, though there are exceptions. Additionally, if you work in public service, your payments on SAVE count toward Public Service Loan Forgiveness (PSLF), which forgives balances after 10 years regardless of the loan amount.
Spousal income and married filing options
For married borrowers, the SAVE Plan offers flexibility that was not available under the previous REPAYE plan. This flexibility can significantly impact your monthly payment amount depending on how you file your taxes.
Excluding Spousal Income:
According to StudentAid.gov, under SAVE, if you are married and file your taxes separately (“Married Filing Separately”), your spouse’s income is excluded from your monthly payment calculation. Your payment will be based solely on your own income. This is a major shift from REPAYE, which included spousal income regardless of filing status.
The Trade-Off:
While filing separately can lower your student loan payment, it often results in a higher overall tax bill because you lose access to certain tax credits and deductions available to joint filers. You must weigh the savings on your monthly loan payment against the potential increase in your tax liability.
Family Size Calculation:
Even if you file separately, you generally cannot include your spouse in your family size for the SAVE calculation unless you provide more than half of their financial support. However, children and other dependents can still be included if they meet the support criteria.
Decision Framework:
- Calculate your SAVE payment using only your income (Filing Separately).
- Calculate your SAVE payment using joint income (Filing Jointly).
- Compare the annual savings on loan payments against the estimated increase in taxes.
- Consult a tax professional to run the specific numbers for your household.
For more details on tax strategies for student loans, refer to our guide to tax filing and student debt.
How to enroll in the SAVE Plan
Enrolling in the SAVE Plan is a straightforward process managed through the Federal Student Aid website. Whether you are switching from another plan or entering repayment for the first time, the application steps are the same.
Step-by-Step Enrollment:
- Prepare Your Documents: You will need your FSA ID (username and password) and income information. While the tool can pull tax data automatically from the IRS, having your most recent tax return handy is helpful.
- Visit StudentAid.gov: Navigate to the IDR application page.
- Start the Application: Select “Apply for an Income-Driven Repayment Plan.”
- Choose SAVE: The tool may recommend the plan with the lowest monthly payment, which is typically SAVE. You can specifically select the SAVE Plan during the process.
- Submit Income Verification: You can provide consent for the Department of Education to access your IRS tax information automatically. This is the easiest method and enables automatic recertification in future years.
- Complete and Submit: Review your information and submit the application.
Processing Time:
According to StudentAid.gov, applications typically take roughly 4 weeks to process as of 2024, though times can vary during periods of high volume. During this time, your loan servicer may place your loans in a temporary forbearance.
Automatic Transition:
If you were previously enrolled in the REPAYE plan, you were automatically transitioned to the SAVE Plan when it launched. You do not need to reapply, but you should verify your status with your loan servicer.
If you need help identifying your servicer, check our loan servicer guide. If you haven’t set up your account yet, see our FSA ID walkthrough.
Annual recertification requirements
To stay on the SAVE Plan and keep your payments based on your income, you must “recertify” your income and family size every year. Failing to do so has consequences, though they are less severe under SAVE than under some older plans.
The Process:
You can recertify online at StudentAid.gov. However, the easiest way to manage this is to consent to the secure transfer of your tax data from the IRS during your initial application. If you provide this consent, your plan will automatically recertify each year without you needing to take action. Your servicer will simply notify you of your new payment amount based on your latest tax return.
Deadlines:
Your recertification is typically due 12 months after you enter the plan. Your loan servicer will send you reminders as the date approaches if you are not enrolled in auto-recertification.
Consequences of Missing the Deadline:
If you miss the recertification deadline, you will be removed from the SAVE Plan. Your payment may revert to the amount you would pay under a Standard Repayment Plan, which is often much higher. To get back on SAVE, you would need to submit a new application and income documentation.
Tax implications of SAVE forgiveness
It is important to consider the long-term tax implications of loan forgiveness. Historically, student loan balances forgiven under IDR plans were treated as taxable income by the IRS, potentially leading to a large tax bill in the year of forgiveness (“tax bomb”).
Current Federal Status:
Under the American Rescue Plan Act of 2021, any student loan forgiveness granted between now and December 31, 2025, is federally tax-free. This means if you receive forgiveness within this window, you will not owe federal income tax on the cancelled amount.
Future Uncertainty:
Unless Congress extends this provision or makes it permanent, forgiveness granted after January 1, 2026, may once again be considered taxable income. Borrowers on the 20- or 25-year track should monitor this legislation closely as they approach their forgiveness date.
State Taxes:
While federal taxes may be waived, some states do not conform to federal rules and may still tax forgiven student loan debt. It is highly recommended to consult with a tax professional to understand the laws in your specific state. For more information, read our student loan tax guide.
How SAVE compares to other IDR options
While SAVE is the most beneficial plan for the majority of borrowers, it exists alongside other options like Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). Understanding how they stack up helps confirm you are making the right choice.
| Plan | Best For |
|---|---|
| SAVE | Most borrowers with Direct Loans who want the lowest payment and interest protection. |
| IBR | Borrowers with older FFEL loans who do not want to consolidate, or those with very high income who want to cap payments at the 10-year standard amount. |
| PAYE | Rarely advantageous over SAVE, but may benefit graduate borrowers who want forgiveness in 20 years (instead of 25 on SAVE) and have high income growth potential. |
| ICR | The only income-driven option available for Parent PLUS borrowers who consolidate their loans. |
Key Difference:
The SAVE Plan does not have a “payment cap.” On plans like IBR or PAYE, your payment can never exceed what you would pay on the Standard 10-Year Plan, no matter how much you earn. On SAVE, if your income rises significantly, your payment rises with it—potentially exceeding the standard amount. High earners should keep this in mind.
For a detailed breakdown, see our complete IDR comparison guide. You can also explore specific guides for IBR and PAYE.
Current status and legal challenges
As of late 2024 and early 2025, the SAVE Plan is facing significant legal challenges that impact its availability. It is crucial to check the current status with your loan servicer or StudentAid.gov, as the situation is evolving.
The Situation:
In the summer of 2024, federal courts, specifically the 8th Circuit Court of Appeals, issued injunctions blocking the Department of Education from fully implementing the SAVE Plan. These legal challenges argue that the administration exceeded its authority in creating the plan.
Impact on Borrowers:
Due to these court orders, the Department of Education has had to pause parts of the program.
- Applications: Online applications for SAVE may be temporarily paused or delayed.
- Payments: Many borrowers enrolled in SAVE have been placed in an interest-free forbearance while the legal battles resolve. During this time, no payments are due, and interest does not accrue.
- Forgiveness: Processing of forgiveness under SAVE has been halted during the litigation.
What You Should Do:
If you are already enrolled, monitor communications from your servicer. If you are in forbearance, you do not need to make payments. If you are applying for the first time, you may need to use a paper application or enroll in a different IDR plan temporarily. Visit our student loan news page for the latest updates.
Frequently asked questions about the SAVE Plan
Yes, you can switch to the SAVE Plan from any other federal repayment plan at any time. You simply need to submit a new IDR application at StudentAid.gov. However, be aware that switching plans can sometimes trigger interest capitalization if you have older loans, though SAVE itself prevents future capitalization.
Yes. Any qualifying monthly payments you made under plans like REPAYE, PAYE, or IBR will count toward the forgiveness timeline (10, 20, or 25 years) if you switch to SAVE.
If your income rises, your monthly payment on SAVE will increase when you recertify. Unlike other plans, SAVE does not cap your payment at the Standard 10-Year amount. If you earn a very high salary, your SAVE payment could theoretically be higher than a standard fixed payment.
No. Parent PLUS loans are not eligible for SAVE. Even if you consolidate Parent PLUS loans into a Direct Consolidation Loan, that new loan is typically only eligible for the ICR plan. There is a “double consolidation” loophole that some borrowers use to access SAVE, but it is complex and time-consuming.
SAVE is an eligible repayment plan for PSLF. If you work for a qualifying employer (government or non-profit), your payments on SAVE count toward the 120 payments needed for tax-free forgiveness.
You cannot enroll in SAVE while you are in school or during your grace period. You must be in repayment status. However, you can apply shortly before your grace period ends to ensure your plan is ready when payments begin.
The SAVE Plan represents a major opportunity for borrowers to reduce their monthly burden and avoid the stress of growing balances. While legal challenges have created some temporary uncertainty, the core benefits of the plan remain designed to support financial stability.
- Lowest Payments: SAVE offers the lowest monthly payment calculation of any federal plan for most borrowers.
- Interest Protection: The 100% interest subsidy prevents your balance from growing when your payment is low.
- Faster Forgiveness: Borrowers with original balances under $12,000 can see relief in as little as 10 years.
- Easy Enrollment: You can apply online and authorize automatic annual recertification.
- Stay Informed: Due to ongoing litigation, keep in close contact with your loan servicer regarding the status of your enrollment.
Your Action Plan:
- Check your eligibility using the checklist in this guide.
- Use the Loan Simulator to estimate your new payment.
- Gather your FSA ID and tax information.
- Submit your application at StudentAid.gov/idr.
- Monitor your email for updates from your servicer regarding legal status or forbearance.
While the SAVE Plan is an excellent option for federal loans, it doesn’t solve every funding gap. Some students may find that federal loan limits don’t fully cover the cost of attendance. In these cases, private student loans can be a responsible tool to bridge the gap, particularly for borrowers with strong credit or a creditworthy cosigner.
According to Betsy Mayotte, President of The Institute of Student Loan Advisors, “In general, federal loans should be your first stop, but private loans can be appropriate when you’ve maxed out your federal eligibility.”
If you’ve maxed out federal options and need additional funding, compare rates from 8+ vetted private lenders — trusted by over 50,000 students and families.
References and resources
- StudentAid.gov: SAVE Plan Overview – The official guide to the plan’s benefits and status.
- IDR Application Portal – Apply for SAVE and other income-driven plans here.
- Federal Student Aid Loan Simulator – Calculate your estimated payments under different plans.
- HHS Poverty Guidelines – Current federal poverty levels used for payment calculations.
- Federal Student Aid Contact Info – Reach out directly for questions about your specific loans.
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