The Saving on a Valuable Education (SAVE) Plan becomes effective over 2023-2024. This is one of several income driven repayment plans and it replaces the Revised Pay as You Earn (REPAYE) plan. Borrowers will need to consider some actions before December 31, 2023 and July 1, 2024 as this plan is rolled out.
For most borrowers, the SAVE plan will result in the lowest monthly payment because the amount is based on 5% of discretionary income for undergraduate loans and 10% of discretionary income for graduate loans. Moreover, discretionary income is redefined as a smaller amount of total income.
The other popular income driven repayment plan is the Pay as You Earn (PAYE) plan. Let’s compare key components of PAYE, the prior REPAYE plan and the new SAVE plan.
*PSLF = Public Student Loan Forgiveness
Other key changes with student loans:
- As of July 1, 2023, interest no longer capitalizes (gets added to principal) when leaving a payment plan, except for the income-based repayment (IBR) plan.
- Recertifying income and family size can be automated in the future by granting permission for the Department of Education to obtain your tax return from the IRS.
- Borrowers enrolled in PAYE prior to July 1, 2024, can maintain access to the plan.
Items to consider by December 31, 2023
- Consolidate loans with different amounts in repayment. If payment history overlaps, the loan with the longest history will be applied to the consolidation loan. This could result in “free” payment credits on loans with short payment history.
- Retroactive credits can be applied in 2024 for old Federal Family Education Loans (FFEL) and other non-qualifying federal loans which are consolidated by the end of 2023.
- Normally, consolidating restarts the payment clock for loan forgiveness. However, an exception applies through the end of 2023 and the payment clock will not reset due to consolidation.
Items to consider by July 1, 2024
- Determine if PAYE, with the capped payment and 20 vs. 25 year repayment schedule for grad loans, is more beneficial than other payment plans.
Be sure to work with your loan servicer and consult these publications for details of the payment plans.
For personalized help eliminating debt, investing smart and securing retirement, please contact Mark Ziety, CFP®, AIF® 608.442.3750.
Mark Ziety, CFP®, AIF®
WisMed Financial, Inc. part of the Wisconsin Medical Society.
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