Income Driven Repayment plan, that has a student loan forgiveness component.  He reworked it so that you might be able to get your loan forgiven – eventually. To sign-up for The SAVE plan, you must have a federal direct student loan in good standing. Private student loans, such as loans you obtained under Sallie Mae, don’t qualify for the SAVE plan or any federal repayment plan. 

Now, the government already offers Income Driven Repayment plans but some of the plans will be phased out and the new SAVE plan will replace the current “Revised Pay-As-You-Earn” plan.  If you are currently enrolled in the “Revised Pay-As-You-Earn” plan, you don’t have to do anything because you will automatically be enrolled in the SAVE plan and your payments will be automatically adjusted.

If you have Federal Family Education Loans or Perkins Loans that are not held by the government, you should consolidate into a direct loan so you can qualify for the SAVE plan.  If you are not currently enrolled in the “Revised Pay-As-You-Earn” plan, you can go ahead now and sign up for the SAVE plan. 

How Much Will You Have to Pay Each Month

Under the SAVE plan, your payments will be based on your income and family size.  It doesn’t matter how much you have in student loans.  Your payments will be 10% of the difference between your adjusted gross income on your federal tax return and 225% of the poverty level. 

In the end, you should see lower payments under the new income driven repayment plan.  It’s possible that you might not have to make a student loan payment at all.  If you have adjusted gross income is at or below 225% of the poverty level, your student loan payment would be zero.  For instance, taking a look at our example, if you are single and you have adjusted gross income at or below $32,805., you won’t have to make a student loan payment at all.

Here are two other benefits of the new SAVE plan that you will see starting October 2023.

1. If your full monthly payment does not cover all of the interest portion on your student loans, that interest will not be added to your loan balance.  The government will just write-off that interest portion so that your student loans won’t grow out of control. So, as long as you’re making your full monthly payments, your student loan balance won’t increase.  AND
2. Married spouses who file their federal income taxes separately, no longer have to include their spouse’s income to calculate their student loan payment amount.

Additional things that will go into effect on July 1, 2024 for the SAVE program are:

1. If your student loan was for undergraduate school, instead of your loan payment being based on 10% of the difference between your adjusted gross income on your federal tax return and 225% of the poverty level, it will be 5%.  So, if you have federal undergraduate loans, you will really benefit here.
2. If you have both undergraduate and graduate student loans, you will pay a weighted average of between 5% and 10% of your income based on the original loan amounts. 
3. You will be able to allow the Department of Education to access your federal tax return so they can get your income and family size information. This way the department would be able to automatically calculate your new payment amount each year.
4. If you allow the Department of Education to access your tax information, and if you are ever 75 days late on making your student loan payment, the government will automatically enroll you in the best income-driven plan for you.

Student Loan Forgiveness

Let’s take a look at the student loan forgiveness part of the SAVE plan.

1. If your original student loans were $12,000 or less, you would get student loan forgiveness after you make 120 payments. 
2. If your original loans were more than $12,000, you would get student loan forgiveness after you make 120 payments plus an additional year of payments for each $1,000 that you borrowed over $12,000.  For example, if you borrowed $15,000 in federal student loans, if you make your required payments, your student loans would be forgiven in 13 years. The maximum amount of time that anyone can pay under an income-driven repayment plan is 25 years.
3. If you consolidate your student loans, you will receive partial credit toward student loan forgiveness for any payments you have already made.
4. You will automatically receive credit toward student loan forgiveness for some, but not all, periods of deferment and forbearance.  For periods of deferment and forbearance when you don’t receive credit toward student loan forgiveness, you will be given the option to make catch-up payments.

If your student loans are forgiven under the SAVE plan, you don’t have to worry about the IRS and federal taxes because you won’t owe anything on the canceled debt.  The bad news though is some states, such as Indiana and Mississippi, do treat student loan debt forgiveness as taxable income.  So, in some states, you may have to pay state income taxes on your student loan forgiveness. 

You should check with your state to see how they will treat your forgiven debt.  By the way, you don’t have accept loan forgiveness.  If you receive a letter saying the federal government is going to forgive your loan debt, you have 30 days to opt out of receiving an Income Driven Repayment account adjustment.