PAYE vs. SAVE: Payments, Forgiveness, and Moving to IBR or RAP

Comparing PAYE vs. SAVE in 2026 is largely a historical exercise: a federal court vacated the SAVE final rule on March 10, 2026, and PAYE has been closed to new enrollees since July 2024 and will shut down entirely on July 1, 2028.¹² If you were on either plan, the comparison still matters, because the differences in payments, interest treatment, and forgiveness timelines shape what you should switch to now.

Where Each Plan Stands in 2026

SAVE grew out of a 2023 overhaul of the older REPAYE plan, and REPAYE borrowers were rolled into it automatically. After a series of legal challenges, a federal court vacated the SAVE final rule entirely on March 10, 2026. Borrowers whose loans had been placed in forbearance during the litigation now have to choose a different repayment plan, and if they don’t, their servicer will assign one.¹

PAYE is still active, but only for borrowers who were already repaying under it on July 1, 2024. Leave PAYE for another plan and you cannot re-enroll.² Under the One Big Beautiful Bill Act, PAYE, SAVE, and Income-Contingent Repayment all sunset on July 1, 2028. After that date, remaining PAYE borrowers will need to move to Income-Based Repayment or the new Repayment Assistance Plan.

Who Qualified for Each Plan

PAYE had the tighter eligibility rules. You had to qualify as a “new borrower,” meaning no outstanding balance on any Direct Loan or Federal Family Education Loan as of October 1, 2007, and you had to have received a Direct Loan disbursement on or after October 1, 2011.² You also needed a partial financial hardship, meaning your income-based payment would come in below the standard 10-year amount.

SAVE was open to a wider group. It took all Direct Loans, including subsidized, unsubsidized, and Direct PLUS loans issued to graduate or professional students. There was no “new borrower” test and no partial financial hardship requirement.³ Parent PLUS loans were ineligible for both programs unless consolidated, and even then a consolidation loan containing Parent PLUS debt did not qualify for SAVE.

How the Monthly Payment Math Differed

Both plans tied payments to discretionary income, but they defined that term differently, and the gap produces real dollar differences.

PAYE: 10% Above 150% of the Poverty Line

PAYE sets your monthly payment at 10% of discretionary income divided by 12, where discretionary income is your adjusted gross income above 150% of the federal poverty guideline for your family size. For a single borrower in 2026, the poverty guideline is $15,960, so 150% is $23,940.⁴ A single person earning $45,000 has $21,060 in discretionary income, which produces a monthly payment of about $175.

If your income is low enough that the formula produces a $0 payment, that $0 still counts as a qualifying payment toward forgiveness.⁵ PAYE also caps your payment so it never rises above the 10-year standard repayment amount, even if your income climbs.

SAVE: 5% or 10% Above 225% of the Poverty Line

SAVE sheltered a much larger share of income. It defined discretionary income as earnings above 225% of the poverty guideline. For that same single borrower in 2026, 225% works out to $35,910, protecting nearly $12,000 more than PAYE.³⁴

The payment percentage also split by loan type. Undergraduate-only borrowers paid 5% of discretionary income. Graduate borrowers paid 10%. Borrowers carrying both types paid a weighted average between 5% and 10% based on original principal balances.³ The same $45,000 earner with undergraduate debt only would have paid about $38 a month under SAVE. Less than a quarter of the PAYE amount.

Interest Treatment

When your monthly payment doesn’t cover the interest that accrues, the unpaid portion either gets waived or gets added to your balance. This is where SAVE offered its biggest benefit.

Under SAVE, the Department of Education covered 100% of remaining interest after you made your scheduled payment. If your loan accrued $75 in monthly interest and your calculated payment was $50, the other $25 was waived, and your balance did not grow as long as you paid on time.³ For borrowers with $0 payments, the entire month’s interest was waived.

PAYE is less generous. On subsidized loans, the government pays the interest shortfall for the first three consecutive years of repayment. After that, or on unsubsidized loans from day one, unpaid interest accrues normally. If you leave the plan or lose your partial financial hardship, that unpaid interest can be capitalized, which means it gets added to your principal and starts generating interest of its own.⁶ That’s how a PAYE borrower can watch a balance climb while making every payment on time.

Forgiveness Timelines

PAYE forgives any remaining balance after 240 qualifying monthly payments, or 20 years, regardless of whether your loans funded undergraduate or graduate study.

SAVE used a tiered structure. Borrowers who originally borrowed $12,000 or less could reach forgiveness in as few as 10 years. Each additional $1,000 above that threshold added one year, capping at 20 years for undergraduate debt and 25 years for graduate debt.³ The early-forgiveness provision for low-balance borrowers was one of the few SAVE features the Department of Education implemented before the court blocked the rest.

How PSLF Fits In

Payments made under either PAYE or SAVE count toward the 120 qualifying payments required for Public Service Loan Forgiveness, and PSLF discharges are not taxable. One wrinkle matters for former SAVE borrowers: time spent in the SAVE-related forbearance during the litigation does not count toward PSLF, though certain other forbearance and deferment periods may count toward IDR forgiveness under the one-time payment count adjustment.¹

Rules for Married Borrowers

Under PAYE, spouses who file jointly have their combined adjusted gross income used to calculate the payment, and both spouses’ federal student debt is counted. Filing separately lets the calculation use only the borrower’s income, which can lower the payment significantly when one spouse earns more or has no student debt.⁷

SAVE was written to let separate-filing spouses use individual income, replacing the old REPAYE rule that pulled in combined income regardless of filing status. With the SAVE rule vacated, that treatment is no longer operative. If you’re transitioning off SAVE, both PAYE and IBR allow separate filing to exclude a spouse’s income.

Filing separately doesn’t always leave your income standing alone. In community property states, each spouse reports a share of community income on their separate return, and the Department of Education uses that AGI figure for your payment calculation. Idaho, Louisiana, Texas, and Wisconsin split all income equally between spouses regardless of who earned it. Arizona, California, Nevada, New Mexico, and Washington split income from jointly owned property only. Borrowers in these states file IRS Form 8958 to allocate income, and the resulting AGI drives the IDR calculation. The community property split can erase most of the benefit of filing separately.

The Tax Bill on Forgiveness After 2025

Under the American Rescue Plan Act, student loan forgiveness was excluded from federal taxable income through December 31, 2025. That exclusion has expired.⁸ Starting in 2026, any balance forgiven under an IDR plan is generally treated as cancellation-of-debt income and taxed at your ordinary rate. Your servicer will send a Form 1099-C in January or February of the year after forgiveness.

The numbers get big fast. A borrower who has $80,000 forgiven and sits in the 22% bracket would face roughly $17,600 in additional federal income tax that year, plus any state income tax.

Two exceptions matter. Forgiveness through PSLF, Teacher Loan Forgiveness, or discharge for death or total and permanent disability remains tax-free.⁸ And if your total liabilities exceed the fair market value of your assets when the debt is discharged, you may qualify for the insolvency exclusion under federal tax law, which lets you exclude the forgiven amount up to the amount by which you are insolvent.⁹ You claim it by filing IRS Form 982 with your return.

What to Move To

With SAVE vacated and PAYE sunsetting, the income-driven landscape is consolidating around two plans.

Income-Based Repayment

The One Big Beautiful Bill Act removed the partial financial hardship requirement for IBR, so borrowers previously locked out can enroll. Borrowers with loans made on or after July 1, 2014, and before July 1, 2026, pay 10% of discretionary income using the 150% poverty threshold, with forgiveness after 20 years, the same basic structure as PAYE.¹⁰ Borrowers with older loans pay 15% with forgiveness at 25 years. The OBBBA also opened IBR to borrowers with consolidation loans that repaid Parent PLUS debt.

Repayment Assistance Plan

Starting July 1, 2026, borrowers with newly issued loans can access the Repayment Assistance Plan. RAP uses a sliding scale from 1% to 10% of income depending on earnings, with a $50 monthly reduction per dependent.¹¹ Forgiveness arrives after 360 qualifying monthly payments, or 30 years, longer than either PAYE or SAVE offered. RAP also lets married borrowers filing separately base payments on individual income.

If you’re on PAYE and weighing whether to stay put or switch before 2028, look at where you are in the timeline. The 20-year forgiveness window and payment cap are valuable if you’re already years into qualifying payments, and your qualifying payment count carries over between IDR plans, so switching doesn’t reset anything. Confirm with your servicer that no months get lost in the transition. If you’re a public-service worker within a few years of hitting 120 payments, staying on PAYE and pursuing PSLF likely beats any alternative, since PSLF forgiveness remains tax-free regardless of which IDR plan you’re on.

1
Federal Student Aid. IDR Court Actions
2
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans
3
U.S. Department of Education. Transforming Loan Repayment and Protecting Borrowers Through the New SAVE Plan
4
HHS ASPE. 2026 Poverty Guidelines
5
Federal Student Aid. Income-Driven Repayment Plans
6
Consumer Financial Protection Bureau. Tips for Paying Off Student Loans More Easily
7
Federal Student Aid. 4 Things to Know About Marriage and Student Loan Debt
8
Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes
9
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
10
Federal Student Aid, Office of Federal Student Aid. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
11
U.S. Department of Education. Fact Sheet – The Trump Administration Is Simplifying Student Loan Repayment