The SAVE Plan: How HBCU Grads Can Lower Student Loan Payments

Last Updated on January 11, 2024

What is the SAVE Plan?

In the wake of financial upheavals and the collective sigh of relief as student loan payments resumed, the Biden administration rolled out the Saving on a Valuable Education (SAVE) Plan. This plan isn't just a new acronym to remember; it’s a lifeline for federal student loan borrowers looking to manage their debts with greater ease.

How Does the SAVE Plan Work?

At its core, the SAVE Plan is an income-driven repayment (IDR) strategy that tailors your monthly dues based on what you earn and the size of your family, not the size of your debt. Here's a rundown of how it benefits you:

More Money in Your Pocket

• Reduced Payments: If you're making below $32,800 annually, guess what? Your monthly payment could be a cool $0.
• No Interest Surprises: Once you've made your monthly payment, no additional interest will be piled on top. Your balance won't inflate even if your payment is zilch.
• Marriage Penalty No More: If you're hitched and filing taxes separately, your spouse's income won't count against you in payment calculations⁵.

Am I Eligible?

Most federal student loans are eligible, including Direct Subsidized and Unsubsidized Loans, and PLUS Loans made to graduates or professionals.

Transitioning from REPAYE

Were you previously under the REPAYE plan? You’ll be transitioned to SAVE automatically, embracing its perks without lifting a finger.

Got Loans in Default?

For HBCU graduates who may have loans in default, the path back to good standing is now straightforward and free through the Fresh Start initiative. This initiative is a lifeline, allowing you to rehabilitate your loans without the usual red tape.

What is the Fresh Start Initiative?

The Fresh Start initiative is a government program designed to help borrowers with defaulted federal student loans regain their footing. It's a straightforward process that takes less than 10 minutes to complete. By signing up, you’re taking an essential step towards financial recovery.

Real People, Real Savings: An Illustrative Example

Imagine Alexander, an HBCU alum with a bachelor's in public administration. He earns $38,000 annually and has a student loan balance of $25,000 at a 5% interest rate. Under the previous REPAYE plan, Alexander's monthly payments were around $134. Transitioning to the SAVE Plan, his payments are estimated to drop to about $43, potentially saving him $91 each month. 

Please Note: This scenario is for illustrative purposes to demonstrate potential savings. Your loan servicer will calculate your actual monthly payment amount based on the specific details of your situation when you apply for the SAVE Plan.

The Future Looks Bright

• From July 2024: Payments for undergraduate loans drop to 5% of your discretionary income. Mix of undergrad and grad loans? You’ll pay a weighted average.
• Loan Forgiveness: Stick with the plan and after ten years, you could get a sweet farewell to your loan balance if it's below $12,000.

But Wait, There’s More!

Worried about tax bombs on forgiven loans? A current rule exempts these from federal taxes, although it’s set to expire in 2025. Always good to chat with a tax advisor just to be sure.

Test Drive Your Payments

Unsure how this all pans out for you? Use the loan simulator tool at studentaid.gov to forecast your payments under different plans before you commit.

Ready to apply for the SAVE Plan?

Hop onto StudentAid.gov/SAVE to apply or switch to the SAVE Plan from a different repayment plan.

Final Thoughts

The SAVE Plan is more than a financial strategy; it’s a commitment to support the economic stability of graduates like you. It’s not just about making repayments manageable; it’s about ensuring that your education serves as a stepping stone, not a stumbling block.

Sources: HomeStreet Bank, Federal Student Aid