The SAVE (Saving on a Valuable Education) repayment plan, introduced in 2023 as a replacement for the REPAYE plan, offers attractive benefits like reduced monthly payments and faster forgiveness timelines for undergraduate borrowers. However, recent legal challenges have left many borrowers uncertain about whether to remain in the program or consider alternative income-driven repayment (IDR) plans. Here’s a breakdown of the current situation and guidance on available options.
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What is the SAVE Plan?
The SAVE plan was designed to ease the repayment burden for student loan borrowers by lowering monthly payments and accelerating forgiveness for certain loans. It quickly gained popularity for its borrower-friendly terms. However, lawsuits challenging the plan’s legality have led to a temporary hold.
As a result of this legal pause, loans under the SAVE plan are currently in interest-free forbearance, meaning payments are not required. While this provides short-term relief, it also creates a downside: these months don’t count toward loan forgiveness under programs like Public Service Loan Forgiveness (PSLF).
Should You Stick With the SAVE Plan?
Despite the legal challenges, experts generally advise most borrowers to stay with the SAVE plan. Its benefits, once reinstated, are expected to surpass those of other repayment options. However, there are specific scenarios where switching plans might be more advantageous.
Alternative IDR Plans to Consider
If you’re contemplating leaving the SAVE plan, here are three main IDR alternatives to explore:
1. Income-Based Repayment (IBR)
For most borrowers, IBR is the most straightforward alternative to SAVE. Payments are calculated based on income and family size, ensuring they remain manageable. Although IBR doesn’t offer the same reduced payments or faster forgiveness as SAVE, it can still be a viable option for those seeking stability in repayment terms.
2. Pay As You Earn (PAYE)
New enrollments for PAYE are currently unavailable. However, borrowers already enrolled in this plan may benefit from staying put, especially if the SAVE plan’s uncertainties create delays in forgiveness progress.
3. Income-Contingent Repayment (ICR)
ICR is primarily available for specific loan types, such as parent PLUS loans consolidated into a Direct Loan. It offers flexible payment options but may result in higher monthly payments compared to other IDR plans.
Who Should Consider Switching Plans?
While the SAVE plan remains a solid choice for most borrowers, some may find greater benefits in transitioning to another plan. Key scenarios include:
1. Nearing PSLF Forgiveness
Borrowers close to completing the 120 payments required for PSLF might benefit from switching plans to avoid delays caused by the SAVE plan’s forbearance.
2. Eligible for Forgiveness Under Another IDR Plan
If you’re near the forgiveness threshold on an alternative IDR plan, switching could help you achieve debt relief sooner.
3. Wanting to Accelerate Payments
Borrowers eager to pay off their loans faster or with low remaining balances may find that leaving the SAVE plan enables them to eliminate debt more efficiently.
Options for PSLF Borrowers
For those pursuing PSLF, the buy-back program offers a solution. Borrowers can make lump-sum payments to retroactively count missed months during the SAVE plan’s forbearance period. This can be particularly beneficial for those nearing the 120-payment milestone. However, borrowers early in their PSLF journey may prefer a plan that allows them to continue making qualifying payments without interruption.
Final Thoughts
The SAVE repayment plan provides significant benefits, but its current legal challenges create uncertainty for borrowers. While staying with SAVE is often the best option, individual circumstances—such as proximity to forgiveness, eligibility for alternative plans, or a desire to expedite repayment—can make switching plans advantageous.
Borrowers should carefully assess their financial goals, consult with loan servicers, and stay informed about updates to the SAVE plan before making any decisions.
