SAVE Can Save Lots of Interest, Even When in Graduate School

Every new student loan plan has created some presumably unintended management strategies (i.e. “loopholes”). Over the years, some features have been removed from newer plans, like the “payment cap” from IBR & PAYE that previously capped your payments at the 10-year standard amount no matter how much money you earned. Others have been codified, like the “married filing separately” loophole that allows you to exclude your spouse’s income when calculating your monthly payments (present with IBR/PAYE, excised from REPAYE, but now back in SAVE).

A small loophole in REPAYE became a big loophole with SAVE based on its 100% unpaid interest subsidy. In the SAVE plan, whatever interest isn’t covered by your calculated monthly payment is entirely waived. Negative amortization is a thing of the past. This is true even for $0 payments, meaning that those with low incomes functionally have an interest-free (0%) loan.

This is a great perk of being in repayment for many borrowers, including medical residents (as I wrote about here).

It’s also an incentive to try to enter repayment as “early” as possible. There are two scenarios where a medical (or other graduate) student can do this:

1. Waive the In-school Deferment for Undergraduate Loans

For regular Direct loans, you cannot enter repayment until you leave school and finish the six-month grace period. You can consolidate after graduation to waive the otherwise mandatory grace period, but you can’t change their in-school status while still in school.

You can waive the in-school deferment for loans from previous schooling. From the Official PSLF FAQ:

Q: If I return to school and qualify for an in-school deferment on my Direct Loans that are in repayment, can I decline the deferment and make qualifying PSLF payments while I’m in school?

A: Yes. You can decline an in-school deferment on your loans that are in repayment status and make qualifying payments on those loans while you are in school. In this case, you must contact your servicer and request that the in-school deferment be removed. Remember, in order for your payments to qualify for PSLF, you must be employed full-time by a qualifying employer while you attend school.

Those graduate students with loans from undergrad can therefore enjoy a generous unpaid interest subsidy for their undergrad loans while completing their graduate studies. For many medical students, 0% undergrad loans during grad school can easily reach five-figure savings.

Also, these extra years of $0 payments during grad school will also qualify for the baked-in long-term currently-taxable (not PSLF) IDR loan forgiveness. Not relevant to most doctors, but certainly relevant to many others.

I wrote about this “loophole” way back in the Further Facets of Income-Driven Repayment chapter of the book.

2. Waive the In-school Deferment for Current PLUS Loans

PLUS loans are technically never in-school status; they’re automatically placed in an in-school deferment.

That in-school deferment is actually optional for PLUS loans. Yes, you can contact your servicer and waive the deferment for PLUS loans. With the current PLUS rate of 8.05%, that unpaid interest subsidy leads to substantial (potentially massive) savings.

Note that you may have to repeat this process every semester as you take out new loans.

Ben Braun has a nice article in Doctored Money about his successful implementation of the PLUS loan method.

Caveat: PSLF

This extra effort and decreased interest have no impact/benefit if you achieve PSLF. PSLF is a time-based program; you don’t get a gold star if the amount forgiven is higher or lower.

This technique would still be a reasonable hedge given the uncertainty of the future even when planning for PSLF.

PLUS to the Extreme

Historically, most students would like to avoid PLUS loans. Their interest rates are always 1% higher than the corresponding rates for standard direct loans (hence the “plus”), and they carry a much higher origination fee (aka “loan fee”), 4.228% instead of the usual 1.057%.

They simply cost more, and needing to take them out also means you’ve borrowed more. Borrowing more money makes people sad.

With this loophole, there’s an argument for trying to skip out on regular loans and just take out PLUS loans. The overall slightly higher rate would be more than mitigated by the 0% rate during school.

Functionally, the government has opened a backdoor into “subsidized” loans (that don’t accrue interest while in school) that used to be available for graduate students until 2012. The irony is that with the SAVE program, PLUS loans are now a much better deal than they’re supposed to be.

Note that there’s an immediate downside to this in that higher loan fee, so there’s actually an upfront cost that’ll take several months to break even on.

Take Home

Entering repayment early isn’t a bad idea at all. It wasn’t a bad idea during the REPAYE era, and it’s frankly a pretty amazing deal with SAVE.

I don’t know how easy it would be for the government to specifically close this loophole, nor how interested they will be in doing so. Some legislators would love to shutter the PLUS program, but I suspect it’s relatively safe. For the conventional loophole implementation, there really isn’t any downside: If you want to put your loans back in deferment while in school, that is always available to you as long as you are enrolled accordingly. So there really isn’t any risk as far as I can tell.

Trying to exclusively use PLUS loans out of order just to benefit from the subsidy is, I think, a much riskier venture. The SAVE program isn’t codified in law, and you can’t convert PLUS loans to conventional unsubsidized loans, so that’s a one-way street I would not personally recommend.


Zach 09.19.23 Reply

Hey Ben, really appreciate your posts and love your student loans book; has been tremendously helpful in my personal student loan planning.

In your first paragraph, you mention that the “payment cap” from IBR & PAYE that previously capped your payments at the 10-year standard amount no matter how much money you earned” was removed. I was wondering if you could help me learn more about that; it still seems like these caps are still there based on the page (, but I wouldn’t be surprised to learn that’s out of date. This is of particular interest as I’m hoping to switch back to PAYE towards the end of fellowship (and still eligible via partial financial hardship) to pursue PSLF. Thanks again.

Ben 09.19.23 Reply

Sorry, I was specifically talking about changes made with the creation of new plans. With regards to the payment cap, I meant removed specifically from the newer plans like REPAYE/SAVE (i.e. loophole closed).

They can’t/didn’t change the old plans, but they are instead limiting access to PAYE. You won’t be able to switch back to PAYE after July 2024.

Zach 09.20.23

Ah, that makes sense; I misunderstood the context of that statement. Appreciate the clarification.

I wasn’t aware of the sunsetting of PAYE and ICR; that certainly changes the game. I suppose the only option to maintain a payment cap after July 2024 will be to switch to IBR; But wouldn’t be surprised if that goes away too. May need to reassess whether it would make more sense to just do a better job of maximizing PSLF via reducing AGI during the first few years as an attending. Regardless, thanks again for your reply.

Ben 09.20.23

IBR isn’t going away because it was created by an act of Congress in 2007 (at the same time as PSLF). Getting rid of it should also require an act of Congress. The other plans (PAYE, REPAYE, SAVE) were instead created by the Department of Education.

This is why IBR access will remain (but is modestly limited):

Remains available, but borrowers cannot select
after 60 payments on REPAYE that occur on or after July 1, 2024.


TC 11.14.23 Reply

Hi Ben,
Thank you for providing this information. For currently enrolled graduate students students. Since most of our grad students are likely to fall in the income threshold that receives a $0 payment, the benefit of negative amortization being phased out on the plan would result in significant savings for borrowers while in school compared to simply keeping loans on an in-school deferment status and accruing interest throughout that time. The concern is, this leads me to understand that any student who enrolls in the SAVE plan will waive their deferment period on their loans. What, if any, are the benefits of to enrolling in SAVE now as opposed to once a borrower is preparing to enter repayment? Would it be waived interest?

Ben 11.14.23 Reply

You can only waive the in-school deferment for loans for a separate course of study (so your undergrad loans while in grad school), you can’t waive for the school period you’re currently in.

The benefit to waiving the deferment for undergrad loans while in grad school is that the rate for those loans if you have a $0 payment will be effectively 0% instead of the current sticker rate.

TC 11.14.23 Reply

Great, thank you!

Marty 12.06.23 Reply

Hi Ben,

Hopefully you are still seeing these comments.

Graduated with a bachelors degree in May, with $30,000 in direct loans. Scheduled to being repayment next month on a standard repayment plan at $350/month. Currently making $11/hour as a medical scribe and won’t be able to afford those payments. I also plan to apply to PA school after a gap year.

In this situation, would you change from standard to PAYE(while it’s still available), or from standard to SAVE?

Thanks so much for your time and insight.

Marty 12.06.23 Reply

Sorry, correction. Standard repayment is set at $305/month, not $350. Either way, cannot afford it at this time.

Ben 12.07.23 Reply

You won’t be paying that when you enter any IDR plan, which should be based on your taxes (that you should file). With some medical scribe work, depending on your hours, you’ll probably have $0 payments. Regardless, the payments will be a bit lower on SAVE, and if you have low payments that don’t cover accruing interest, then SAVE will give you a nice interest subsidy. See this post for more:

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