SAVE is the New REPAYE

The Biden student loan forgiveness plan was blocked by the Supreme Court, but the new repayment changes are currently (and will likely stay) alive and well. The “New REPAYE” plan has been rebranded: SAVE (“Saving on a Valuable Education,” in case you were wondering).

Here are the take-home points, mostly courtesy of this brand new White House briefing:

Lower Payments for Undergrads

For undergraduate loans, cut in half the amount that borrowers have to pay each month from 10% to 5% of discretionary income.

SAVE–like PAYE and REPAYE–uses 10% of discretionary income for graduate borrowers as well as a weighted average of those numbers if you have debt from both undergrad and grad school.

Lower Payments for Everyone

Raise the amount of income that is considered non-discretionary income and therefore is protected from repayment, guaranteeing that no borrower earning under 225% of the federal poverty level—about the annual equivalent of a $15 minimum wage for a single borrower—will have to make a monthly payment under this plan.

Discretionary income is currently defined as 150% of the poverty line. This change will decrease payments for all borrowers except those with very high incomes.

For example, in the continental US, the poverty line for an individual in 2023 is $14,580. This means the income excluded for a single person for PAYE/REPAYE is $21,870 and for SAVE will be $32,805.

In practice, this means that not only will PGY1 residents have $0 payments, a lot of PGY2 residents probably will too. A later years resident certifying an income of $60k for example would have their payment decreased from $318/mo to $227/mo under the new plan.

10-year Forgiveness for Low-volume Borrowers

Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less. The Department estimates that this reform will allow nearly all community college borrowers to be debt-free within 10 years.

This long-term non-PSLF forgiveness takes place after 20 years for undergrad borrowers and 25 years for graduate borrowers, which is unchanged from REPAYE. This income-driven repayment (IDR) loan forgiveness is currently set to become taxable again in 2025 and is irrelevant for the majority of doctors.

A Full Unpaid Interest Subsidy

Not charge borrowers with unpaid monthly interest, so that unlike other existing income-driven repayment plans, no borrower’s loan balance will grow as long as they make their monthly payments—even when that monthly payment is $0 because their income is low.

This will be huge for residents, who often find themselves in the situation of “negative amortization” when their calculated monthly payments do not cover accruing interest.

The REPAYE unpaid interest subsidy waived half the unpaid amount; SAVE waves it all.

It also means those $0 payments interns typically enjoy yield an effective 0% interest rate. Amazing!

But furthermore, no matter what you owe, you’ll probably feel like you have a 0% interest rate loan outside of the mandatory monthly payment. Technically, our example resident with that $227 monthly payment would have an effective rate of 1.36% on a $200k loan balance (less than inflation = free money)

Truly, one of the great pains for residents–especially those with big loans–was to watch the amount they owed balloon while they slogged through training. No more! You might not make any progress, but your loans won’t grow.

The generousness of this combination–lower payments, waived interest, and more built-in forgiveness–has raised the possibility that some private companies will sue the government to shut this down. I don’t think they have a real chance of winning that case.

The unpaid interest subsidy also means that waiving the in-school deferment for undergraduate loans while in graduate school (or the deferment for any PLUS loans) would be also an easy way to save a lot of interest, as those loans would effectively become 0% interest rate while in school with a typical student’s income.

The Married Filing Separately Loophole

Not mentioned but still important: The Married Filing Separately Loophole, which was closed in REPAYE, has been reopened. This means that married borrowers can choose to file taxes separately in order to exclude their spouse’s income from the payment calculation.

This has historically been especially important for residents with high-earning spouses and has been a key reason to pick PAYE (and occasionally IBR) instead of REPAYE (discussed at length in the Maximizing PSLF chapter).

With everything else + the reopening of this loophole, SAVE is a great plan for borrowers and overall greatly simplifies student loan management.

The Payment Cap

The one important “loophole” of PAYE and IBR that remains closed from REPAYE appears to be the removal of The Payment Cap. With the older plans, your monthly payments were capped at the amount of the standard 10-year repayment even if 10% of your discretionary income would be a larger number. This created a PSLF boon for doctors with long training because even with their subsequent high income they would never “pay their fair share.” Even so, for the vast majority of people nationwide, SAVE will be better than PAYE.

The government’s plan is that SAVE replaces REPAYE, and they close PAYE and ICR to new borrowers. The intention is also to close PAYE to even current borrowers who simply want to switch starting summer 2024, but doing so would actually go against precedent, so we’ll see how that plays out when some of these operational details are finalized. If your income is set to rise high enough in the future for the payment cap situation to be relevant–and PAYE is closed–IBR (which is in the actual 2007 law passed by Congress) will probably always be available. We’ll know more when the plan is fully in effect.

For those currently in PAYE or considering choosing it now while still available, the only practical consideration that is relevant is this payment cap situation with regard to loan forgiveness. For doctors set on PSLF, one would need to compare the savings from lower payments during residency with the potential savings from capped payments as an attending.

As an example, the maximum monthly payment on the older plans for our hypothetical $200k borrower was $2,220. In SAVE, you only hit that amount with an annual income of around $330k. So the “optimal” choice depends on how much you borrow, how much you earn, and how many years of attending income you have before achieving PSLF.

This would mostly affect people with relatively high attending incomes relative to their debt. The most future-proof plan given the uncertainty of a medical career would be to choose SAVE, and that is what I suspect the vast majority of residents would choose even if they had the option. If nothing else, the lower payments during residency will probably impact your life more than lower payments as an attending.

For those with massive loan balances and plans for work that wouldn’t qualify for PSLF, then the payment cap consideration is also potentially relevant to the 25-year IDR loan forgiveness, but this is a very uncommon scenario for physicians (further discussed in this chapter).

Conclusion

Because the plan only improves upon REPAYE without downsides, all borrowers on REPAYE will automatically be switched over to the new plan:

Borrowers who sign up or are already signed up for the current Revised Pay as You Earn (REPAYE) plan will be automatically enrolled in SAVE once the new plan is implemented.

Easy peasy.

For recent graduates, the COVID payment freeze has been and the new SAVE plan will be a huge boon, even if the $10k student loan forgiveness that some residents would have received didn’t pan out.

46 Comments

Bradley Heinz 07.07.23 Reply

What would be your advice for student borrowers who have yet to graduate? I have a year to go (and am $300k in debt)

Ben 07.07.23 Reply

Nothing you can do while your loans are in-school status. The advice to consolidate after graduation and enter repayment as soon as possible is unchanged.

Abe 07.08.23 Reply

what is your advice for a fellow who is about 11 months out of graduation with a job already lined up for whom PAYE would help with the payment cap once I become an attending? My payments start in Sept 2023 and I was just going to suck it up and pay slightly higher payments now given that my wife’s income is up there too. I applied to switch to PAYE given that the Govt may stop us from switching to that plan in the future. Thanks

Ben 07.11.23 Reply

If nearing the end of training then you probably won’t benefit from SAVE very long and the years of capped payments from PAYE would probably be better. The only way to know for sure is to run your numbers.

Mike Mehlman 07.11.23 Reply

What plan would you recommend for someone who has finished med school outside U.S 350K debt currently about to start work in PSLF eligible Research job currently in Forbearance and just tried to enroll for consolidation and REPAYE I’m not currently working at moment plan to Start working in September Starting Sal at 74K. Also I have never filed Taxes

Ben 07.11.23 Reply

Just file taxes, consolidate, and pick SAVE.

Chris V. 07.11.23 Reply

Hi, I hope you might be able help with this question. I graduated in 2010 and have been on the IBR (income-based repayment) plan since 2011. So under that plan, I’m about halfway toward the 25-year forgiveness. I owe about $140,000 now, mostly graduate loans. I’m trying to figure out if I should switch to REPAYE/SAVE or not. If I switch, would I lose the progress I’ve already made toward forgiveness under IBR? Hope to hear from you! Thank you.

Ben 07.12.23 Reply

No, you’re supposed to keep the progress. The plans use years of qualifying payment, not years in that specific plan.

Chris V. 07.12.23

Thank you very much!

Dan 07.14.23 Reply

In a state of post call confusion, I re-consolidated my loans that were already in REPAY a year into my training. Not into a private loan but another federal loan under REPAYE, did that wipe out my first year of PSLF qualifying payments?

Ben 07.14.23 Reply

Not if you submitted the PSLF Waiver that expired at Oct 31, 2022. https://studentaid.gov/announcements-events/pslf-limited-waiver

S 07.14.23 Reply

Currently have federal loans (400k!) in Residency Deferment. Am I now accumulating interest which would be waived if I switched to the SAVE program?

Ben 07.14.23 Reply

You shouldn’t have any interest accumulating at all during the current payment pause. But going forward, this will waive monthly interest not covered by a monthly payment. It would not cancel out previously accumulated interest such as that accrued while in school with unsubsidized loans.

S 07.15.23

Just to clarify, if I remain in deferment and am not making payments, does that mean I don’t qualify for the waived interest?

Thanks so much for your responses!

AJ 07.14.23 Reply

Wondering what you would recommend? I have ~500K in federal loans and became an attending this year with a $300K salary. I’m enrolled in PAYE, and my wife is a pharmacist with a pretty high salary and and she’s enrolled in REPAYE (she has ~250K in federal loans). We have both been pursuing PSLF since 2019. We’ve filed our taxes separately in anticipation of loans resuming. But now wondering which plan would benefit us? Also with the resumption of loan payments in October, will they recalculate all the IDR payments? Mohela still shows a low payment based on resident salary. So many questions!

Ben 07.14.23 Reply

You can use a calculator like the one online at studentloanplanner to see what your payment will be on SAVE vs PAYE. If you earn less than your loan amount, then yes you’ll have a lower monthly payment under SAVE.

But if you switch now you’ll need to recertify your income instead of enjoying that super low resident-sized payment until next year. Stay on PAYE, keep MFS, and assuming your income doesn’t go up, you can switch to SAVE next time you need to recertify.

AJ 07.14.23

Thanks! What’s MFS?

Ben 07.14.23

Married Filing Separately

Dan p 07.16.23 Reply

My wife is a high earner as a general dentist and I have two years left of residency making around 75k a year. We made the mistake of filing our taxes married filed jointly for 2022. When we signed up for the program initially we both were still in school so our income was zero. I’m currently enrolled in the repaye program but if we recertify will it go off our previous year AGI or our current year? I can file separately next year but I’m not sure if this will help us. I’d like to keep our payments low until I finish with residency. Thanks for your help

Ben 07.17.23 Reply

Good discussion here: https://www.studentloanplanner.com/idr-recertification/

When you recertify it will use your most recent taxes, but you may not need to until next year anyway. Your payments this fall will be based on when you last recertified, so they should still be low until you’re told you need to recertify, which may not be until 2024. So you’ll probably be better off waiting to recertifying until needed and filing taxes separately next year in anticipation.

Corina D 07.18.23 Reply

Hi, do we know for certain these changes are happening? I spoke to someone at Mohela (the student loan servicer) and also with someone at studentaid.gov today and they had no information about PAYE ending enrollment as of July 2023. Similarly, they claimed that the married-filing-separately loophole will not be part of SAVE. Is it possible that both of these individuals were misinformed? Confusing to hear 2 different stories. Thanks for clarifying!

Ben 07.19.23 Reply

From ed.gov final fact sheet “How the New SAVE Plan Will Transform Loan Repayment and Protect Borrowers”:

Married borrowers who file their taxes separately will no longer be required to include their spouse’s income in their payment calculation for SAVE. These borrowers will also have their spouse excluded from their family size when calculating IDR payments, simplifying the choice of repayment plan for borrowers.

Per that document, the final ruling will completely take effect July 1, 2024. That’s when PAYE should stop taking new enrollment, not this summer.

d 08.04.23 Reply

my 2022 tax return income is ~200k, 2023 income ~460k. loan amount is 350k. want to pay it off in 5 years, but make minimum payments for 1.5 years and save for a house during that time then pay the loan off after getting a house. PAYE or SAVE? thanks.

Jamie 08.16.23 Reply

Ben, thank you for taking the time. I’ve been enrolled in PAYE since 2015. My loan balance is $247,000 with a 7.5% interest rate. ($187,000 plus $60,000 in interest already). Assuming my salary stays the same, (AGI around $70,000),I calculated what I would pay monthly with PAYE vs SAVE. I do save a bit of money each month with SAVE; however, the extra 5 years of payments on SAVE takes me much higher amount for the entirety of the loan (PAYE forgives 5 years sooner). Should I be focused on saving what is paid during the entire loan (with PAYE), or focus on decreasing interest and the total forgiveness amount (with SAVE) I’m thinking about forgiveness, and what that will look like. the amount forgiven will be much higher on PAYE vs SAVE.. taxes that year?? Maybe paying 5 years extra with SAVE is worth it? Thanks

Ben 08.17.23 Reply

The issue between the two in your situation is also that with PAYE it sounds like you are in a negative amortization situation with your loan balance continuing to grow, and with SAVE and the unpaid interest subsidy, they will stay fixed. Unless rules change, that means your taxes in the year of forgiveness for PAYE will be larger, so you’d need to calculate the extra cost from that versus the extra cost from 5 years of payments. Studentloanplanner has a calculator that can illustrate that breakdown.

But to a certain extent, it’s also just a psychological choice/value decision between the value of money to you and your life now versus later. Especially since who knows how things may change over the next 20 years.

Jamie 08.20.23 Reply

Thank you for your reply, Ben

K 08.24.23 Reply

Hi Ben,
I’m a PGY-4 resident about 22 months from graduation. I’m currently enrolled in PAYE as my wife is a PA and thus we do our taxes MFS. I have about $250,000 in student loan debt. I anticipate making $400,000 as an attending and also anticipate working in academics (I should know this information more definitively in the next six months). I think for me, the PAYE cap will decrease my payments as an attending, so I should stick with PAYE. Would love to hear your thoughts. Thanks

Ben 08.24.23 Reply

Yes, this close to graduation, you are unlikely to meaningfully benefit from the unpaid interest subsidy or the lower payments. If going for PSLF, PAYE will optimize forgiveness.

Joe 08.24.23 Reply

Hi Ben,
I’m a married fellow with 10 months to go, my wife is a PGY4 resident with 22 months left. We file taxes jointly and both have loans >160k each from med school only. I plan to pursue PSLF and my expected attending salary next year will rise to $225k (currently $68k as a fellow). I am currently on PAYE but wondering if I should switch to SAVE? I like the lower payments for SAVE (every calculator or estimator I’ve used shows a lower monthly payment), but with PAYE I like that the cap will never be higher than the standard plan monthly payment. If I switch to SAVE, I’ll never qualify for PAYE again (won’t have the ‘financial hardship’). Is it better for me to switch to SAVE, or keep with PAYE since my salary is about to increase next year?

Ben 08.25.23 Reply

If you’re close to graduation and you’ll likely have multiple years of capped payments, then staying on PAYE will make the most sense.

SAVE has a lower payment for most borrowers because of the increased discretionary income level, but with attending income like that SAVE will probably only be minimally smaller upfront and then you’ll cap if your income increases over time (which you probably hope it will?). Unless the smaller payments you’re seeing a significantly smaller and that money will make a significant different to your current budget, the numbers right now are the best you’ll see going forward, so PAYE will make you the most future-proof in terms of optimizing PSLF since SAVE can get infinitely worse depending on your salary but PAYE is capped as you said.

Sam 08.31.23 Reply

Hi:

Great website. I am currently not working, and looking to go graduate school within 1 – 2 years, single. I have federal loans – graduate and undergraduate – > $30k. I need to start making payments in October. What plan should I sign up for?

With the new SAVE plan that just rolled out, what is the best option? My income will go up as a midlevel provider in the near future (3 – 4 years from now), and am unsure whether PSLF would be an option depending upon where I end up working. Please kindly suggest to me what is the best option to pursue.

Also, does the SAVE plan in any forgive any loan amount – interest or actual loan if one is doing so for sometime

Ben 09.02.23 Reply

SAVE will have the lowest payments for now and will forgive all acruing interest that isn’t covered by your payment.

If you borrowed only $30k and plan to be a midlevel, the built-in forgiveness will not be relevant to you. You’re going to make too money to stretch your loans over the 20-25 years to get them forgiven that way. PSLF also probably won’t be all that relevant given your future income and the small loan amount, unless you meant you’d be taking out more money for school in the future. Otherwise odds are you’ll be paying these off yourself.

Helene 09.15.23 Reply

I was in REPAYE and will be moved automatically to SAVE. Does that move involve capitalization, ie. will the interest accumulated in REPAYE be added to the principal, thus creating a new principal balance?

Ben 09.15.23 Reply

No, because really you aren’t being moved per se, SAVE is replacing REPAYE. There are no downsides to the change in your situation.

Jordan Jones 03.22.24 Reply

Hey Ben!

I have grad plus loans that are in Save program and my monthly payments are $0 for now. I checked my loans and it shows they are still accruing interest. I called my loan servicer to understand how my grad plus loans in SAVE still show interest accruing despite having the $0 monthly payment. The loan servicer advisor told me the government still subsidizes the interest but that it will still show how much interest has accrued anyway. That is fine but when I consolidate my unsubsidized and grad plus this summer, should the accrued interest of Grad PLUS after being on SAVE not capitalize…Despite them still keeping track of my accrued interest.

Ben 03.22.24 Reply

I have always found that the servicers/government handle waived interest poorly and historically several have shown accruing interest only a monthly basis, which is never very encouraging. It *should* work out in the end.

Vanessa 04.02.24 Reply

Hello, I am starting residency this year and have about 270k in federal loans. I will be receiving about 70k in salary intern year. I’ll be filing tax as a single earner. Which plan would benefit me with plans to pursue PSLF? I was thinking about choosing SAVE for the lowest monthly payments but wanted to know what are some other things to consider. Thanks!

Ben 04.02.24 Reply

For your situation, SAVE is the best for lowest payments for PSLF but also lowest effective interest rate in case your plans change and end up paying them off yourself.

DJ 04.13.24 Reply

Hello,

I am researching about rolling into SAVE while in med school for all my Grad plus loans. I have an income of 22,500 and my wife is starting her residency this year earning around 63,000. Should I file separately and enroll in SAVE? my wife does not have loans but I do.

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