SAVE Plan Income Limits: What It Is and How It Works

#1 Student loan lawyer

Updated on May 23, 2024

Is There an Income Limit for the SAVE Plan?

The SAVE Plan doesn’t have a strict income cutoff, which sets it apart from other income-driven repayment plans. This means that even if you’re a high earner, you may still qualify for the SAVE Plan and benefit from its unique features, such as lower monthly payments and loan forgiveness after 20-25 years of payments or qualifying forbearance time. But, your income plays a role in determining your monthly payment amount.

Key Takeaways:

  • The new SAVE Plan has no strict income limit for eligibility

  • Your monthly payments are based on your discretionary income, calculated using your adjusted gross income (AGI) and family size

  • Higher earners may have higher monthly payments but can still qualify for the SAVE Plan

  • Changes in your income can affect your eligibility and monthly payments

  • While there’s no hard income limit, the plan uses your discretionary income to calculate your monthly payments, which can result in higher payments for borrowers with higher incomes.

To better understand how the SAVE Plan works and how income affects your eligibility and monthly payments, let’s look closely at the key features of this new repayment plan.

What is the SAVE Plan?

The Saving on a Valuable Education Plan is a new income-driven repayment (IDR) plan announced by the Biden-Harris Administration for federal student loan borrowers. The U.S. Department of Education created this plan to replace the old Revised Pay As You Earn (REPAYE) Plan, aiming to make student loan repayment more manageable and affordable, especially for low-income borrowers.

Key features of the SAVE Plan include:

  1. Lower student loan payments compared to other IDR plans

  2. $0 monthly payments for low-income borrowers

  3. Capped payments at 5% of discretionary income for higher-income borrowers

  4. No growth in loan balances due to unpaid interest for borrowers making required monthly payments

  5. Exclusion of spousal income for married borrowers who file taxes separately

  6. Shorter repayment period before forgiveness for borrowers with original principal balances of $12,000 or less

  7. Streamlined enrollment and annual recertification process

Related: Does SAVE Plan Eliminate Interest?

Eligibility for the SAVE Plan:

  • All borrowers with Direct Loans in good standing are eligible

  • Borrowers with other loan types, such as FFEL or Perkins loans, must consolidate those loans into a Direct Consolidation Loan to qualify

To apply for the SAVE Plan, visit the Federal Student Aid website at StudentAid.gov.

How Are Monthly Payments Determined Under the SAVE Plan?

Under the SAVE Plan, your monthly payments are based on your discretionary income, which is calculated using your adjusted gross income (AGI) and family size.

Here’s how it works:

  • Discretionary Income: The difference between your AGI and 225% of the federal poverty guideline for your family size.

  • Monthly Payment: 10% of your discretionary income, divided by 12.

  • If your discretionary income is less than or equal to $0, your monthly payment under the SAVE Plan would be $0.

The SAVE Plan also offers loan forgiveness after 20 years of qualifying payments for undergraduate loans and 25 years for graduate loans, even if you have a remaining balance.

AGI

Family Size

225% of Federal Poverty Guideline

Discretionary Income

Monthly Payment

1. $60,000

3

$50,783

$9,217

$77

2. $80,000

4

$67,463

$12,537

$105

3. $100,000

5

$84,143

$15,857

$132

How Do Changes in Income Affect SAVE Plan Eligibility and Payments?

Your income can affect your eligibility and monthly payments under the SAVE Plan. Here’s what you need to know:

  • Income Increases: If your income goes up, your monthly payments may also increase based on the higher discretionary income calculation. However, you can still qualify for the SAVE Plan, as there is no strict income cutoff for eligibility.

Example: If your AGI goes up from $60,000 to $70,000, with a family size of three, your discretionary income would go up from $9,217 to $19,217, and your monthly payment would rise from about $77 to $160.

  • Income Decreases: If your income goes down, you may become eligible for lower monthly payments or even $0 payments under the SAVE Plan. This can provide relief for borrowers facing financial hardship or unemployment.

  • Annual Recertification: You must recertify your income and family size yearly to ensure your monthly payments align with your current financial situation. Submit updated documentation to your loan servicer, such as tax returns or pay stubs.

  • Consequences of Not Recertifying: If you don’t recertify your income by the annual deadline, you may be removed from the SAVE Plan and placed on an alternative repayment plan, which could result in higher monthly payments.

To stay eligible for the SAVE Plan and ensure your payments are correct, keep your loan servicer informed of any changes in your income or family size.

Related: Is the SAVE Plan Worth It?

To qualify for the SAVE Plan, you must show you have a partial financial hardship, meaning your annual payments under the SAVE Plan would be lower than what you would pay under a 10-year Standard Repayment Plan.

The SAVE Plan calculates your discretionary income using your AGI and family size. Here’s a breakdown of the income-related eligibility requirements:

  • Adjusted Gross Income (AGI): Your total taxable income minus certain deductions, such as student loan interest and alimony payments. You can find your AGI on your most recent federal income tax return.

  • Family Size: Includes you, your spouse (if applicable), and any dependents. A larger family size results in a higher federal poverty guideline, which is used to calculate your discretionary income.

  • Partial Financial Hardship: Your annual payments under the SAVE Plan must be lower than what you would pay under a 10-year Standard Repayment Plan, based on your discretionary income (AGI minus 225% of the federal poverty guideline for your family size).

  • Eligible Loans: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to graduate or professional students, and Direct Consolidation Loans that do not include Parent PLUS Loans are eligible for the SAVE Plan. To qualify, other loan types, such as FFEL or Perkins loans, must be consolidated into a Direct Consolidation Loan.

If you meet these income-related eligibility requirements and have eligible loans, you may qualify for the SAVE Plan. However, your eligibility can change if your income or family size changes, so recertify your information yearly.

Why am I not eligible for the SAVE Plan based on my income?

If you are not eligible for the SAVE Plan, it may be because your income is too high relative to your family size, resulting in a discretionary income that does not demonstrate a partial financial hardship. But, other factors beyond income can affect eligibility, such as the type of federal loans you have and your repayment status.

At what income amount does the SAVE Plan no longer benefit the borrower?

There is no specific income amount at which the SAVE Plan no longer benefits the borrower. The plan’s benefits depend on factors such as your debt-to-income ratio, the amount of your loans, and your long-term financial goals. Sometimes, even high-income borrowers may benefit from the SAVE Plan’s loan forgiveness provisions or the ability to make more manageable monthly payments based on their discretionary income.

Bottom Line

The SAVE Plan is an income-driven repayment plan that offers lower monthly payments and expanded eligibility for federal student loan borrowers. While there is no strict income limit for eligibility, your income plays a significant role in determining your monthly payment amount.

Key points to remember:

  • Borrowers with higher incomes may have higher monthly payments, while those with lower incomes may qualify for lower or even $0 payments.

  • The SAVE Plan calculates monthly payments based on 10% of your discretionary income, determined by your AGI and family size.

  • Changes in your income can affect your eligibility and monthly payments under the SAVE Plan. You must recertify your income and family size yearly to ensure your payments align with your current financial situation.

Consider the SAVE Plan if:

  • You are seeking lower monthly payments based on your income

  • You have a high debt-to-income ratio

  • You are pursuing loan forgiveness after 20 or 25 years of qualifying payments

Still unsure if switching to the SAVE Plan is the right move for you? Book a 1:1 strategy call with one of our expert student loan consultants. We’ll review your unique financial situation and help you determine whether the SAVE Plan aligns with your goals and if it could save you money eventually.

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