The new SAVE repayment program has arrived!

On August 1st, 2023, the U.S. Department of Education, in coordination with the various student loan servicers have began the process of implementing the new SAVE repayment program for eligible borrowers. The SAVE program is the long awaited Revised REPAYE program with a new name: SAVE. The SAVE program is almost deterministically dominant to all other student loan repayment programs thus far. There are 5 key aspects of today’s action by the U.S. Department of Education implementing the SAVE program.

• The SAVE program is extremely generous and basically better than all other programs available
• Parent Plus borrowers and FFEL borrowers have been completely excluded from SAVE
• SAVE is being implemented now, without delay
• There are 2 versions of SAVE: the 2023 version and the 2024 version
• Student loan borrowers who are currently in the REPAYE program are automatically being converted to the SAVE program under the authority of the U.S. Department of Education

The SAVE Plan is extremely generous

The calculation of the monthly payment for the SAVE plan offers a larger deduction and a lower percentage of disposable gross income. 225% of the poverty guideline will be deducted from a borrower’s adjusted gross income. The SAVE plan will require payment of 10% of the remaining income (disposable gross income) in 2023 and only 5% of the remaining income in 2024. Due to these 2 factors, more borrowers will be assigned a lower student loan payment in 2023, and an even lower student loan payment after July of 2024. In addition, any monthly interest that would accrue in excess of a borrower’s monthly payment under SAVE will be disregarded. Effectively, federal student loans are interest free under the SAVE program for borrower who have been assigned a $0 payment.

Not everyone qualifies for SAVE

Parent Plus borrowers are not allowed to enter Parent Plus loans into the SAVE plan. Borrowers with FFEL loan are also not allowed to enter FFEL loans into the SAVE plan. Borrowers with Perkins loans cannot enroll those loans into the SAVE plan. These restrictions are based on the type of loan, not the borrower. So if a borrower has some Parent Plus loans, and some other Direct loans that are not Parent Plus loans, the borrower can enroll the non-Parent Plus loans into SAVE and at least partially benefit from SAVE. Borrowers who consolidated any Parent Plus loans into a Direct Consolidation Loan will not be able to enter the Direct Consolidation Loan into SAVE. Borrowers with FFEL loans or Perkins loans can consolidate those loans into a Direct Consolidation loan and then fully benefit from SAVE.

Tools are available now to actually enroll into SAVE

The U.S. Department of Education website has been updated to allow federal student loan borrowers to enroll into SAVE. A special website within a website has been constructed for this purpose. The form required to enroll into the federal student loan income based programs has been updated with the SAVE option. Student loan servicer websites have applied popups and splash pages announcing the new program.

There are 2 versions of SAVE, 2023 and 2024

The 225% poverty guideline exemption is currently in effect as of August 2023. The reduction of the disposable income requirement from 10% to 5% is scheduled to occur in July of 2024. In addition, starting July of 2024, borrowers with $12,000 or less will only have to pay on their loans for 10 years. After 10 years in repayment on the SAVE plan, the entire balance will be forgiven by the federal government. This duration benefit exists on a scale, where for every $1,000 in student loan debt, one year is added to the required time in repayment to achieve this forgiveness. Therefore, a $13,000 balance will be forgiven after 11 years in repayment on the SAVE plan. A $14,000 balance will be forgiven after 12 years in repayment on the SAVE plan. This pattern continues up to $22,000 being forgiven after 20 years in the SAVE plan, which is equal to the term regardless of the balance for federal student loan borrowers who took out loans for undergraduate studies. In rare circumstances, this scale can extend from 20 to 25 years, corresponding with debt amounts of $23,000 to $27,000 for federal student loan borrowers who took out loans for graduate studies.

REPAYE is being automatically converted to SAVE, starting 8/1/2023

Federal student loan borrowers in the REPAYE program who logged into their student loan servicer’s website the morning of 8/1/2023 discovered that their student loans had automatically been transferred to the SAVE program. The 225% poverty guideline deduction immediately lowered their monthly student loan payment and in many cases, certified that monthly payment for a year.

The extremely uncommon downsides of SAVE

It is possible to pay more than the 10 year straight line amortization total of your federal student loan balance in the SAVE program, provided your income increases significantly. Failure to annually recertify for SAVE will subject a student loan borrower to the lesser of the 10 year standard or the 20-25 year standard extended payment, which could be much higher than all of the other income based payments.

What does this mean for Hope Credit borrowers?

All Hope Credit clients are advised to contact their case worker as soon as possible but definitely before October 1, 2023 when student loan payments are set to resume as a result of the Fiscal Responsibility Act of 2023. All client files are currently being evaluated for financial benefit as a result of this new plan. It would be a good idea to set aside some time to respond to any emails, voicemails, or texts that may be coming from your Hope Credit case worker. The effects of this recent change are far reaching and can financially benefit a majority of student loan borrowers in a major way. Clients who are currently enrolled in the REPAYE program will see a reduction in their monthly payments immediately. However, clients enrolled in IBR, PAYE, and IBR for New Borrowers will need to evaluate their benefits and choose to take action to enroll in the new SAVE program.

Unfortunately Parent Plus borrowers, who are often already struggling to repay their loans, have once again been denied inclusion in this new benefit offered by the U.S. Department of Education. However, during this relatively dynamic time period of federal student loan policy, there may be other benefits available to Parent Plus borrowers such as PSLF, the new IDR account adjustment, and the more equitable approach by the U.S. Department of Education to Borrower Defense to Repayment and Total and Permanent Disability Discharge than we’ve seen in several years.