How Does the SAVE Plan Ending Affect PSLF Borrowers?

The Saving on a Valuable Education (SAVE) repayment plan is no more. What does this mean for student loan borrowers pursuing the Public Service Loan Forgiveness (PSLF) program?

For most PSLF borrowers, the end of SAVE is not nearly as bad as you may think. This is particularly true for low earners and high earners. That said, there’s one class of borrowers who are particularly hurt by the SAVE plan ending. We’ll cover who should be most concerned and what you can do to mitigate the negative financial impact.

How much higher are PSLF payments with SAVE gone?

For many borrowers, SAVE plan payments are only modestly lower than alternatives such as the new Income-Based Repayment (IBR) plan or the Repayment Assistance Plan (RAP).

Consider a single borrower earning $50,000 a year. Here are their payments on three different repayment plans:

New IBR	SAVE	RAP
$217	$59	$167

SAVE would have been about $1,200 a year cheaper than RAP. That’s certainly a difference, but it’s not an enormous difference (it’s an increase of about 2.4% of this borrower’s income).

Of course, any increase would be unwelcome to most borrowers. But an increase in this range would likely be affordable for most single individuals.

Let’s look at a married physician who earns $400,000 a year, owes $400,000 in student loan debt and files taxes separately from their spouse.

New IBR	SAVE	RAP
$3,134	$3,040	$3,333

In this case, the difference as a percent of income is even smaller. It’s $3,516 more per year on RAP, which is 0.88% more of the physician’s income compared with the SAVE plan.

Which PSLF borrowers get hurt most by the SAVE repeal?

The biggest negative impact of the SAVE plan going away will be felt by middle-income earners with multiple children.

The SAVE plan provided a deduction equal to 225% of the poverty line for your family size. RAP allows a deduction of only $50 per dependent per month.

Let’s see how the payments would be different on the various income-driven repayment (IDR) plans for a pharmacist working at a nonprofit hospital who earns $120,000 a year and files taxes separately from her spouse. Let’s assume she has four children.

New IBR	SAVE	RAP
$446	$294	$800

RAP would cost $6,072 more per year than SAVE. Her payment increase would amount to 5% of her income.

The math suggests that middle-class families with children are the biggest losers among PSLF borrowers due to the repeal of the SAVE plan.

What does the SAVE repeal mean for PSLF buyback?

The last big point to note is that the SAVE repeal also takes away SAVE as an option for calculating PSLF buyback.

This has the same negative impact as what I showed above. Low- and high-income borrowers will be able to calculate PSLF buyback amounts under RAP that are reasonably close to what they would have been under the SAVE plan.

However, middle-class earners with families will face disproportionately larger PSLF buyback payments, especially those earning between $70,000 and $150,000 per year.

This is due to the loss of the discretionary income formula under SAVE that was so beneficial to households with children.

Don't fret about SAVE going away — Get a plan instead

A student loan plan can’t take away the negative impact of higher payments under RAP, but it can use every available loophole to lower your payments to the lowest amount allowed by law.

There are many ways to minimize student loan payments, and with recertifications and forced moves into RAP happening over the coming months, make sure you’re getting the lowest PSLF payments under either IBR or RAP and that you switch repayment plans at the right time. Get an expert plan if you need one.