Experts say: Stick with SAVE for student loan forgiveness – with four exceptions
If you are registered for the Save on a Valuable Education payment planyour student loans will continue to exercise patience while the plan is challenged in court. But if you’re eager to pay off your student loans, you might consider switching to a different income-driven repayment plan.
After a two-month hiatus, online application for IDR subscriptions is back, but options remain limited. For most SAVE borrowers it is it is wise to wait for a solution instead of making a change. However, there are a few scenarios where getting your student loans out of the SAVE repayment plan could be beneficial.
We spoke to three student loan experts to find out when it makes sense to stick with SAVE and when it doesn’t.
What’s going on with the SAVE student loan plan?
The Biden-Harris administration launched the SAVE plan in the summer of 2023 to provide borrowers with lower monthly repayment terms and a path to student loan forgiveness. SAVE, a replacement for the REPAYE plan, aimed to cut payments for student borrowers in half and offered loan forgiveness in just 10 years instead of the usual 20 or 25 years.
Earlier this year, two separate groups of Republican-led states filed a lawsuit to block the SAVE plan. In one case, a federal court order was successfully obtained suspending SAVE. As a result of this order, loan servicers are unable to bill SAVE borrowers for the required amount and have instead placed all SAVE loans in blanket forbearance.
“Borrowers in the SAVE repayment plan are currently in an interest-free forbearance situation,” says financial aid expert Mark Kantrowitz. “This means they don’t lose any money by participating in the scheme. All they lose is time, as months of patience do not count towards forgiveness.”
While the forbearance may provide a welcome financial relief for some borrowers, others may not appreciate not receiving loan forgiveness credits through the IDR debt relief pathway or programs such as Public Service Loan Forgiveness.
Read more: Student loan forgiveness put on hold again. Experts explain what’s next for debt relief
Most SAVE borrowers must remain seated
The future of the SAVE repayment plan is up in the air, but switching to an alternative plan may not be worth it, experts say. First, changing your plans can increase your borrowing costs.
“Changing plans can result in an increase in the borrower’s monthly payment, as well as additional interest accrual,” says student loan attorney Adam Minsky.
Megan Walter, senior policy analyst at the National Association of Financial Aid Administrators, also cautioned against changing plans if you’ve already met the qualifying payment requirement for IDR loan forgiveness. If SAVE is approved, you could see debt relief faster if you continue to follow this plan.
Currently, your options for other income-driven repayment plans are also limited. Although the online application is available again, most borrowers only have access to the Income-Driven Repayment Plan.
Loan servicers are not processing new enrollments for the PAYE scheme, and only borrowers with a consolidation loan who have repaid a parental PLUS loan can receive income-contingent repayment.
There are also significant processing delays, and borrowers who attempt to make a change may find themselves in a 60-day processing window, during which interest charges will accrue.
“The lawsuits will eventually be resolved,” Kantrowitz said. While it’s not clear how long it will take, Kantrowitz predicts it will take less than a year for the courts to reach a conclusion.
Read more: Student loan payment pause extended by six months for SAVE borrowers
Understanding the PSLF Buy-Back Program
Although borrowers affected by the SAVE plan’s blanket forbearance are not making progress toward government loan forgiveness, they now have the option to “buy back” PSLF credits.
As the name “buyback” suggests, you can pay a lump sum for the months you missed during the grace period. For example, if your monthly payments are typically $150 and are suspended for nine months, you can make a $1,350 payment after the pause is lifted, bringing you nine months closer to forgiveness.
In particular, You can buy back your credits if you:
- Time spent in eligible deferment or deferment status while maintaining PSLF eligible employment
- Make sure you have outstanding balances on your loans
- You have reached the point where buying back those months will complete your 120 payment requirement for PSLF
💰 Pro tip: While the pause is in effect, you can transfer what you would have paid in student loan payments each month into a high-yield savings account. When the pause is lifted, you will have the money immediately available to deposit into your account, and you will have earned a little bit of interest.
When you should consider getting out of the SAVE repayment plan
There are a number of scenarios where abandoning the SAVE plan could make sense:
You are about to receive PSLF forgiveness
You may also want to leave SAVE if you are in the area eligible for government loan forgiveness and want to apply for debt relief as quickly as possible.
“Borrowers who are just a few months away from being eligible for forgiveness may want to switch to a different income-driven repayment plan,” Kantrowitz said.
You are eligible for forgiveness with another IDR plan
If you meet the requirements to receive forgiveness through another income-driven repayment plan, you may want to switch to get your balance wiped out sooner. Make sure you meet the requirements. Typically, IDRs require 20 to 25 years of on-time payments to qualify for debt forgiveness.
You are part of the PSLF plan and do not want to be dependent on the Buy-Back program
You can only take advantage of the PSLF buyback program if it puts you over the 120 payment threshold for PSLF. If you are at the beginning of your PSLF journey, you may prefer to take another eligible repayment plan.
“[Borrowers] “Maybe they don’t want to wait years to apply for buyback credits and have to manually add those months to their count as they progress,” Walter said. “They may prefer to stick with a repayment plan that avoids such potentially major delays.”
You want to resume payments sooner
Another reason to move away from SAVE is if you would like to resume progress pay your student loans.
“Borrowers whose priority is paying off their loans faster, especially those early in their careers when their monthly payments under an IDR plan may be at their lowest, may prefer to resume payments sooner rather than later “, said Walter.
If you have a low balance or can afford to pay even more than your monthly payment, you may want to transfer your loans out of SAVE so you can pay off your debts faster.
How to change your student loan repayment plan
If you are interested in switching to another IDR subscription, you can submit an IDR subscription request on the Federal Student Aid website. The application takes 10 minutes or less. You will need your FSA ID, personal information, and financial information.
Here’s how you can switch to another income-driven repayment plan:
- Log in to your Federal Student Aid account: You can log in with your unique username and password, also known as your FSA ID.
- Complete the IDR Plan Request application: You answer questions about your income, family size and marital status.
- Check your financial information: You may need to manually upload your income documentation if the IRS import tool doesn’t work.
- Select an IDR subscription: Right now, your primary option is the IBR plan. Borrowers with a consolidation loan who have repaid a parent PLUS loan can also enroll in ICR.
- Sign and submit your request: Your loan servicer will process your application, but during this time your loans may be temporarily deferred.
Be sure to keep a copy of your application request and other important information, Walter said. “I recommend keeping detailed records, such as taking screenshots of your loan balances and interest rates, especially if you have multiple loans or change service providers.”
💰 Pro tip: Due to processing delays, switching to a new subscription may take some time. It can also result in higher monthly payments and higher interest charges. Weigh the pros and cons before making any moves.
Ultimately, the decision of whether to drop out of the SAVE repayment plan depends on your priorities and repayment situation. However, with all the processing delays and uncertainty surrounding IDR plans, most borrowers will benefit from staying on SAVE and waiting to see what happens next.
