What to know about the new SAVE student loan repayment plan before pandemic pause ends

Correction: There have not yet been any major legal challenges to the Biden administration’s SAVE plan on student loans. The information was incorrect in an earlier version of this story.

Student loan borrowers now have access to the beta website for the Saving on a Valuable Education (SAVE) plan, the Biden administration’s new income-driven repayment (IDR) plan, after the Department of Education unveiled it this week. 

The program, which the White House calls the “most generous” such plan ever offered to borrowers, will become the main IDR interface for student debt in the coming months. 

Borrowers will be navigating the changes SAVE makes to their monthly payments, which are set to restart in October after the three-year COVID-19 pause. 

The SAVE plan, which doesn’t list a maximum applicable income, comes after the Supreme Court earlier this summer struck down President Biden’s attempt to forgive up to $20,000 per student loan borrower.

Here is what you need to know about SAVE before payments return:

How do borrowers apply?

All student loan borrowers are eligible to enroll in the SAVE plan and can start applying immediately.

Those who are on the Revised Pay As You Earn Repayment (REPAYE) IDR plan will not need to apply to the SAVE plan. The department is automatically enrolling them in the new plan. 

And those who apply during the beta phase of the website will not have to apply again once the website is fully launched in August. 

“During the testing period, eligible borrowers can apply for the SAVE Plan, but some website functionality may be limited as the Department’s technical team monitors site performance and refines and tweaks the application as needed,” an Education Department spokesperson said. “This testing period will allow the Department to monitor site performance through real-world use, test the site ahead of the official application launch, refine processes, and uncover any possible bugs prior to official launch.” 

An education department official said the application should only take around 10 minutes to complete as the site can automatically pull up tax documents and other information you need for the application if it is already in its system.

Unlike past plans, if a borrower agrees to securely allow the department to access certain tax information, the agency will automatically recertify a person for the SAVE plan every year instead of the borrower having to do it themselves.

The same applies to a person who is 75 days late on their payments next July. If they agree to disclose certain tax information, the department will automatically enroll them in the plan.

What changes are made in the plan this year?

The plan is getting launched in two phases with some changes coming in the next couple of months and others coming next summer. 

The first change raises the income exemption from 150 percent to 225 percent above the federal poverty guidelines. For borrowers, this means monthly payments will be based on a smaller portion of one’s income, leading to smaller payments on loans. 

An individual borrower making as much as $32,800 a year would have $0 monthly payments on their student loans. A family of four would need an income higher than $67,500 to have monthly payments above $0. 

Another change implemented this year will affect the interest on monthly payments. As long as someone on the SAVE plan makes their principal payments on their loans each month, they will not be penalized with growth of unpaid interest. 

“You now have assurances that your reduced payment will be satisfactory for paying off the balance of your of your student loans, and you won’t have to worry about interest rates, causing your loan to grow even as you make payments,” said Bruce McClary, senior vice president of media relations and membership for the National Foundation for Credit Counseling. 

“That’s exciting news because there’s nothing more deflating than looking at your statement and seeing your balance grow as you’re making the agreed upon payments based on the reductions through your plan,” McClary added. 

And in a third change this year, spousal income will not be included in the monthly calculations for married couples who file separately. 

Changes happening next summer

In July of next year, several changes will take place for those who are under the SAVE plan.

Borrowers with undergraduate loans can expect their monthly payments to be cut in half from 10 percent of their discretionary income to 5 percent.

Those with original balances of up to $12,000 can reach forgiveness after 10 years of payments, with an additional year added for every $1,000 after $12,000.

Borrowers who consolidate loans won’t lose time towards their forgiveness and payments made before 2024 will count towards time to forgiveness. 

Changes will also occur for people who are in deferment or forbearance, although with the restart of student loans, everyone has been given a clean slate so no individual will be in deferment or forbearance until next year. 

Certain periods of deferment or forbearance will qualify towards months for forgiveness and borrowers will be able to make “catch-up” payments to receive credit for other types of forbearance or deferment. 

By the time the changes are implemented, it is likely the REPAYE program will be completely phased out and other IDR options will be limited. 

“There was a lot of confusion about the different plans and the appropriateness of those plans in terms of a person’s unique circumstances and, for many borrowers, they had to had to take a little bit of extra time to reach out and get some expert advice to help guide them in the right direction to plug into the plan that worked best for them,” McClary said. “So hopefully, some confusion will be cleared, and the program will be presented in a way that’s easier to understand.”

Could this fall through in court?

The plan has been decried by Republicans for its hefty price tag of between $150 billion and $350 billion, according to varying estimates.

“The administration’s Income-Driven Repayment rule is nothing more than a backdoor attempt to provide free college by executive fiat,” House Education and the Workforce Committee Chairwoman Virginia Foxx (R-N.C.) previously said.

While Republicans are unhappy with the change, there have been no serious challenges to stop the plan.

Education Department officials have said they are confident in the legality of the SAVE plan since it went through the negotiated rulemaking process and public comment period. 

Republican challenges to other student debt relief efforts by the administration have often been based on arguments the actions did not go through the proper channels.

—Updated Aug. 7 at 10:55 a.m.