SAVE Borrowers: Here’s How to Pick the Best New Plan for You | Student Loans

Roughly 7 million borrowers will be shopping for a new student loan repayment plan in the coming months.

On July 1, loan servicers began notifying borrowers who were in the Saving on a Valuable Education plan, or SAVE, that they have 90 days to switch out of the defunct plan and into an alternative one. Servicers will continue to send notices to batches of borrowers on a rolling basis in a process that could stretch through the end of the year or longer. A borrower’s 90-day window to select a new plan starts when they receive the alert.

Many are making the transition reluctantly, since the Biden-era SAVE plan typically offered borrowers the most generous terms of any federal plan. But financial advisors and student loan counselors say ignoring or delaying action isn’t the best financial decision for most people.

“The biggest mistake is doing nothing,” says Robert Farrington, founder of The College Investor. “If you miss your deadline and end up in default, that could be disastrous for your finances. Student loan default is always more costly than enrolling in a repayment plan, and the long-term damage to your finances can take a decade to fix.”

Instead, it’s time to begin kicking the tires on the remaining available options. Here’s a look at the repayment options for SAVE borrowers and which plan might be the best fit for your situation.

These plans remain available for student loan borrowers:

Repayment Assistance Plan. A shiny new income-driven plan that the Trump administration launched earlier this month, RAP is structured to prevent runaway debt (good) and extend your forgiveness timeline (not so good). Monthly payments are based on a percentage of your adjusted gross income, up to 10%. Those with higher incomes pay a higher percentage on their loans. Your payment is reduced by $50 for each dependent. RAP also features a pair of subsidies that keep your balance from ballooning. (More on that below.) You’ll have to make 30 years of payments under RAP to get your balance discharged.

Income-Based Repayment plan. This plan offers better terms for more recent borrowers than it does for those with older loans. Monthly payments are 10% or 15% of your discretionary income, which is your annual income minus 150% of the poverty line for your family size. Loans disbursed before July 1, 2014, require 25 years of payments for forgiveness, while loans disbursed on or after that date have a 20-year discharge timeline. This plan is surviving the federal student loan overhaul, so borrowers switching to IBR can stay on it into the future. It will only be available to borrowers with loans issued before July 1, 2026, however.

Income-Contingent Repayment and Pay As You Earn. These two plans will phase out on July 1, 2028. Eligible borrowers can still transition to these plans – and some may benefit from doing so. However, you’d have to switch plans again in two years. Like IBR, these plans use discretionary income to determined your monthly payments.

The above plans are all known as income-driven plans, meaning they base your monthly payments on your income rather than your interest rate and loan balance. Alternatively, borrowers can choose a standard repayment plan, which functions more like a traditional loan where you make fixed monthly payments for a set number of years until you fully pay off the loan.

Here’s a side-by-side comparison of the income-driven plans:

You’ll likely want to begin by determining which payment plans you’re eligible for and then use a student loan repayment calculator to estimate your monthly payments on each plan. But experts emphasize that this should only be a starting point when comparing plans. Forgiveness timelines, tax implications and future income changes are among the factors that need to be considered.

“When evaluating different repayment plans, it’s easy to pick the one that results in the lowest payment,” says Glenn Sanger-Hodgson, a consultant at Student Loan Planner. “However, when it comes to student loans, your goal should really be to pay as little as possible over the life of the loan, and the plan with the lowest monthly payment can sometimes result in a higher lifetime cost on your debt.”

While other income-driven repayment plans follow similar formulas to determine monthly payments, RAP uses considerably different calculations. The new plan puts borrowers in income brackets, with those in higher brackets owing a higher percentage of their income. While various factors can impact payments, experts say single borrowers making less than $80,000 a year will generally pay less each month under RAP than they would in other plans.

Here’s a look at the RAP brackets and estimates of what your monthly payment might be depending on your income.

RAP boasts two benefits that borrowers will want to factor into their calculations. First, the plan waives any interest that isn’t covered by your monthly payment. Second, if your payment doesn’t reduce the principal by at least $50, the government will contribute to trim it by that amount.

These subsidies combine to prevent your balance from growing as long as you make on-time payments. That can save you thousands of dollars in taxes on your discharged balance if you reach forgiveness. It also can help motivate borrowers to keep up with their payments, says Andy Smith, executive director of financial planning at Edelman Financial Engines.

“There’s an emotional component to all of this that people often know exists but fail to put to words,” says Smith. “One of the biggest frustrations borrowers face is making monthly payments but feeling like their loan balance never seems to shrink.”

If you aren’t nearing a six-figure salary, you’ll likely find that RAP produces the lowest monthly payments of the available plans. You also stand to benefit from the interest and principal subsidies that keep your total balance in check. While a ballooning balance may not affect your monthly payments in an income-driven plan, it can ultimately lead to a “tax bomb” if your loans are forgiven, potentially resulting in a single-year tax bill of tens of thousands of dollars.

“For borrowers with lower incomes relative to their total student loan debt who will see the interest on their loans grow and grow over time, these features can really help keep loan balances in check and, more importantly, keep the taxes on forgiven debt in the future from becoming unmanageable,” says Sanger-Hodgson.

Of course, you’ll have to consider whether lower payments and a manageable balance are worth extending your forgiveness timeline to 30 years, as RAP does.

If you work in public service or at a nonprofit and you’re aiming to get your loans forgiven after 10 years through the Public Service Loan Forgiveness program, the best plan for you is the one that offers the lowest monthly payment. All income-driven plans qualify for PSLF. Your balance is largely irrelevant because you’re planning to make 120 payments, all based on your income. Plus, forgiven PSLF balances aren’t treated as taxable income by the IRS, so you don’t need to worry about a potential tax bomb that could become more nuclear as your balance balloons.

“For borrowers pursuing PSLF, the key question is which qualifying plan offers the lowest monthly payment: IBR or RAP,” says Farrington. “If that’s RAP, go for it.”

Graduates expecting their degree to eventually pay off may want to begin their repayment journey on RAP. The theory here is that the subsidies will lock your balance in place during your early years, putting you in position to aggressively pay off your loans when your salary grows.

“One example where RAP is a great plan is for someone who knows they will eventually pay off their loans, rather than go for forgiveness, but is experiencing a period of low income,” says Sanger-Hodgson. “Think someone like a recent graduate or a medical resident who knows they will earn more in the future than they do now.”

If your income is approaching or exceeding six figures, you may find that IBR gives you a lower monthly payment. The lowest monthly payment should be the deciding factor for most people who expect to have their loans canceled after 10 years in public service.

If you’ve made years of payments and are getting close having your loans forgiven, jumping into RAP to snag lower payments may not be worth it. That’s because doing so will tack on an additional five or 10 years of loan bills before you’ll get your balance discharged.

“Since RAP extends the forgiveness timeline by an extra five-10 years versus IBR, even if IBR is a slightly higher payment, it may be a lower total cost over time,” says Farrington.

One factor to keep in mind is that payments you make in RAP won’t count toward IBR forgiveness if you were to hop between plans. So those aiming for IBR’s shorter forgiveness timeline will likely want to avoid RAP.

IBR’s repayment terms are more generous for borrowers who took out loans on or after this date. Monthly payments are 10% of discretionary income, rather than 15%, and forgiveness comes after 20 years instead of 25.

These factors could shift the scale in favor of IBR for borrowers with newer loans.

… you’re a masochist who wants to do this all again in two years. No, we’re kidding. There actually are scenarios where it pays to hitch a ride on one of the sunsetting plans before settling on another new plan by July 1, 2028. Here are a couple of those situations.

If you’re one those borrowers who would fall under the “old IBR” plan, you might want to transition into PAYE to take advantage of lower payments for the next two years before ultimately switching plans again, says Farrington. Borrowers in PAYE have monthly payments based on 10% of their discretionary income, which will be better than the 15% they would pay in IBR.

“If that PAYE payment is better than RAP, use it until the plan ends in 2028,” Farrington says.

PAYE has certain eligibility requirements, so you’ll want to check that you qualify for the plan.

Parent PLUS loans, which parents take out to help fund their student’s education, are no longer eligible for income-driven repayment plans. However, some parents consolidated their loans before July 1, 2026, to gain access to income-driven plans.

If you did this but haven’t enrolled in an income-driven plan, you’ll have to initially enroll and make one payment in the ICR plan before you can then switch to IBR.

Smith emphasizes that every person’s student loan situation will be different, and borrowers will need to weigh numerous factors when developing a repayment strategy.

“The best repayment plan is the one that fits your overall financial picture and long-term goals, not the one that worked for someone else or the loudest voice in your ear,” says Smith. “Think about where you are in your career, how your income is likely to change over time, whether you’re working toward Public Service Loan Forgiveness, and how your student loan payments fit alongside your other financial priorities.”