How Does the SAVE Plan Work: Payments, Forgiveness, and Replacement

Under the SAVE plan, your monthly federal student loan payment is set at 5% to 10% of your discretionary income — the amount you earn above 225% of the federal poverty guideline for your family size — and any balance left after 20 or 25 years of payments is forgiven. That is how the Saving on a Valuable Education plan is designed to work on paper. In practice, as of 2026, the plan is blocked by a federal appeals court, most enrolled borrowers have been in forbearance since mid-2024, interest is accruing again, and a replacement plan is scheduled to take over by July 1, 2026.

Where the SAVE Plan Stands Right Now

SAVE replaced the older REPAYE plan through regulatory changes finalized in 2023. Several states sued, arguing the Department of Education exceeded its authority. In July 2024, a federal district court in Missouri blocked key parts of the plan, and the Department placed enrolled borrowers into an administrative forbearance at 0% interest. In February 2025, the U.S. Court of Appeals for the Eighth Circuit blocked the entire plan. That ruling ended the 0% interest rate, and interest began accruing again on SAVE loans on August 1, 2025.¹

In December 2025, the Department proposed a settlement with Missouri that would formally end SAVE. A federal court declined to approve that settlement in February 2026 and dismissed the underlying lawsuit, which means the Department must go through a full rulemaking process to remove SAVE from federal regulations. No new borrowers can enroll, and existing borrowers have not been billed under the plan in over a year and a half. The Department emailed more than 7.6 million SAVE borrowers in July 2025 encouraging them to switch to a different repayment plan.¹

The mechanics below describe how SAVE is written to operate. They still matter, because the plan’s regulations remain on the books during rulemaking and because they shape the choice you face about whether to stay or switch.

How Your Monthly Payment Is Calculated

SAVE bases your payment on discretionary income, defined as the amount you earn above 225% of the federal poverty guideline for your family size.² Anything below that line is shielded from the calculation.

For 2026, the federal poverty guideline for a single person in the 48 contiguous states is $15,960 per year.³ At 225%, the first $35,910 of your income is protected. For a family of four, the poverty guideline is $33,000, so $74,250 is protected. If your adjusted gross income falls below the protected threshold, your calculated payment is $0.

Once discretionary income is determined, the plan applies a percentage to it and divides by 12:

Undergraduate loans only: 5% of discretionary income
Graduate or professional loans only: 10% of discretionary income
A mix of both: a weighted average between 5% and 10%, based on the original principal balances of your undergraduate and graduate loans

If you borrowed equal amounts for undergraduate and graduate study, that works out to 7.5% of your discretionary income.⁴

A Worked Example

A single borrower earning $55,000 with only undergraduate loans starts with $55,000 minus the $35,910 protected amount, or $19,090 in discretionary income. Five percent of $19,090 is $954.50 per year, about $80 per month. A single borrower earning $35,000 falls below the $35,910 threshold and owes $0.

If You Are Married

If you file taxes jointly, your spouse’s income is included in the calculation. If you file as married filing separately, only your own income counts.⁵ Filing separately can meaningfully lower your payment if your spouse earns more, though it may raise your overall tax bill.

The Interest Subsidy

SAVE’s defining feature is that unpaid interest does not capitalize. If your calculated payment does not cover all the interest that accrues on your loans in a given month, the government absorbs the rest so your balance does not grow.⁴ The subsidy covers both subsidized and unsubsidized loans.

Say $50 in interest accrues in a month and your required SAVE payment is $30. The remaining $20 is not charged and not added to your balance. If your calculated payment is $0, the full $50 is covered. That design prevents the negative amortization that trapped borrowers in earlier income-driven plans, where making every required payment could still leave a balance that grew year after year. This subsidy is not currently in effect: with the plan blocked, interest is accruing on SAVE loans as of August 1, 2025.

When Your Balance Is Forgiven

Any remaining balance is forgiven after a set number of years of qualifying payments:

Undergraduate loans only: 20 years
Any graduate or professional loans: 25 years

Months in which your calculated payment is $0 still count toward that timeline. You receive forgiveness credit even when you owe nothing.⁴

Faster Forgiveness for Smaller Balances

Borrowers whose original balance was $12,000 or less can reach forgiveness in 10 years. For every additional $1,000 borrowed, the timeline increases by one year, up to the standard 20- or 25-year cap.⁶ Someone who originally took out $15,000 would qualify at 13 years; someone at $20,000 would land on the standard 20-year undergraduate timeline.

Which Loans Qualify

SAVE is open to borrowers with Direct Loans, including Direct Subsidized and Unsubsidized Loans and Direct PLUS Loans made to graduate or professional students. Direct Consolidation Loans qualify, provided the consolidation did not include a Parent PLUS Loan.⁴

Parent PLUS Loans are not eligible, and consolidating a Parent PLUS Loan into a Direct Consolidation Loan does not fix that. A Consolidation Loan that repaid any Parent PLUS debt is excluded.⁴ Older FFEL and Federal Perkins Loans must first be consolidated into a Direct Consolidation Loan to be eligible.⁷ Consolidation resets your payment count toward forgiveness, so weigh that before consolidating.

Defaulted loans cannot be repaid under any income-driven plan, including SAVE.² To become eligible again, you must rehabilitate the loan by making nine on-time, voluntary payments within a ten-month window, or consolidate the defaulted loan into a new Direct Consolidation Loan.⁸

SAVE and Public Service Loan Forgiveness

Payments made under SAVE generally count toward the 120 qualifying payments needed for Public Service Loan Forgiveness, as long as you are employed full-time by a qualifying government or nonprofit employer. The months borrowers have spent in SAVE-related forbearance since mid-2024, however, do not automatically count toward those 120 payments.

The Department created a PSLF Buyback program to recover credit for those missed months. You can request to make payments for months you missed during forbearance and have them count toward your PSLF total. The buyback amount is based on what your income-driven payment would have been during that period. If approved, you have 90 days to pay the full amount. Any PSLF-enrolled borrower who missed payments due to forbearances after 2007 can use the program.

Tax Treatment of Forgiven Balances

Through the end of 2025, student loan forgiveness was excluded from federal taxable income under a temporary provision in the American Rescue Plan Act, codified at 26 U.S.C. § 108(f)(5). That exclusion expired on January 1, 2026. Forgiveness received after that date under income-driven plans, including SAVE, is generally treated as taxable income on your federal return.

Public Service Loan Forgiveness is unaffected. It remains permanently tax-free under a separate provision. But borrowers reaching a 20- or 25-year milestone after January 1, 2026, could face a substantial tax bill, and a large forgiven balance could push you into a higher bracket for that year. State tax treatment varies. Some states follow the federal definition of income and would also tax forgiven balances; others have decoupled or written their own exemptions. Check your state’s current rules before assuming any outcome.

What Replaces SAVE

The One Big Beautiful Bill Act created a new income-driven plan called the Repayment Assistance Plan (RAP), which the Department must make available to borrowers by July 1, 2026.¹ RAP replaces SAVE and the other existing income-driven plans for new loans disbursed after that date. Borrowers currently in SAVE, ICR, or PAYE must transition to a new plan by July 1, 2028, or be moved into RAP automatically.

RAP uses a graduated scale rather than a single percentage. Borrowers earning $10,000 or less per year pay 1% of income, those earning $10,000 to $20,000 pay 2%, and the rate rises by one point for each additional $10,000 of income up to 10% for borrowers earning $100,000 or more. RAP also sets a minimum payment of $10 per month regardless of income, and forgiveness comes after 30 years, a decade later than SAVE’s 20-year undergraduate timeline. Borrowers with no new loans disbursed after July 1, 2026, can remain in certain existing plans, including IBR and the standard repayment plan, or opt into RAP voluntarily.

If You Are Still in SAVE

Your loans are almost certainly in forbearance and accruing interest. You can switch to another income-driven plan such as IBR at any time without waiting for the litigation to conclude. Switching matters most if you are pursuing PSLF, because the forbearance months do not automatically count toward your 120 payments.

If your loans have been in repayment for 20 or more years and you might qualify for forgiveness under IBR or ICR, switching out of SAVE now could get you there sooner than waiting for the case to resolve. The Federal Student Aid Loan Simulator at StudentAid.gov compares your options across the available plans before you commit. When your loan moves to a new servicer, your status, interest rate, and repayment plan transfer with it, though it can take up to six weeks for your full payment history to appear on the new servicer’s system.⁹ If anything looks wrong after the transfer, contact the new servicer.

1
U.S. Department of Education. U.S. Department of Education Announces Agreement With Missouri to End Biden Administration’s Illegal SAVE Plan
2
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans
3
U.S. Department of Health and Human Services. 2026 Poverty Guidelines: 48 Contiguous States
4
Edfinancial Services. Saving on a Valuable Education (SAVE) Plan (Formerly the REPAYE Program)
5
Department of Education (FSA Partner Knowledge Center). Loan Servicing Information – Availability of Saving on a Valuable Education (SAVE) Plan and Updates to the Income-Driven Repayment Plans
6
Consumer Financial Protection Bureau. Student Loan Forgiveness
7
Edfinancial Services. Repayment Plan Comparison
8
Federal Student Aid. Student Loan Rehabilitation for Borrowers in Default: FAQs
9
Federal Student Aid. So Your Loan Was Transferred – What’s Next?