It’s no secret that student loan debt is a top-of-mind concern for college students, and the SAVE plan is the Biden administration’s latest attempt to address the student debt crisis. They had previously debuted a student loan forgiveness plan in October 2022, only for it to be blocked by the Eighth Circuit Court of Appeals less than a month later, and then struck down in the June 2023 Supreme Court decision in Biden v. Nebraska for violating the Administrative Procedure Act.
The SAVE (Saving on A Valuable Education) repayment plan replaces the REPAYE (Revised Pay As You Earn) plan, which was first introduced in 2015. If you’ve taken out student loans in college, or plan to, there’s a chance that the new plan could affect your loan repayments, depending on how much you make after graduation. To figure out what this really means for Gen Z, Her Campus spoke to Vivian Tu, better known as Your Rich BFF, a former Wall Street trader and current content creator who focuses on educating her audience about financial literacy.
Tu is also the author of Rich AF: The Winning Money Mindset That Will Change Your Life. The book, slated for a Dec. 26 release, can help you rethink your financial trajectory in college and post-grad. “I want to show regular people how to start thinking like the rich do. Then by taking into account some of those learnings … we can make our lives easier,” Tu says. That includes lessons on leveling up your career, setting financial boundaries, budgeting, and more. But where do student loans and the SAVE plan fit into your financial future? Let’s talk about it.
So, what even is the SAVE plan?
What does the SAVE plan actually mean? Tu is here to put it in the simplest terms possible: “It’s just the old REPAYE program, but it’s better,” she explains. “Depending on how much you make, you could owe nothing each month and your interest also wouldn’t compound, and you wouldn’t be required to pay down your loans until you’ve earned over a certain threshold.”
“Previously, it was a certain percentage of the poverty line [that income-driven repayment plans apply to], and now, those multipliers of how much you can make before you essentially qualify out of these programs [are] changing,” Tu says. That percentage of the federal poverty level (FPL) used to be 150%, but is now rising to 225%. That means that under the new SAVE plan, a single borrower earning $32,800 or less will have their payments set at $0. “So TL;DR, more people are qualifying for income-driven repayment plans.”
Tu also highlights one other aspect of the new plan you should know about: “Even though interest is going to start accruing in September and payments are going to restart in October, there will be a temporary 12-month grace period where if you can’t make payments, you’re going to be able to avoid some of the harshest financial consequences — things like a negative impact to your credit score or going into default. That’s really important because it’ll give people enough time to start to budget student loan payments back into the amount of cash that’s been outflowing out of their checking accounts.”
Will this actually matter for Gen Z?
According to Tu, yes, it will. “People who are able to qualify for the SAVE plan, they’re going to see their undergraduate loans have the payments reduced from 10% to 5% of their discretionary income — so your income after food, housing or other basic needs,” she says. “So I do think that’s a pretty chunky cut. That’s half!”
The Department of Education estimates that a typical graduate of a four-year public university will save nearly $2,000 a year, and Tu advises recent grads to make strategic use of that money. “It could be used in a high-yield savings account to build an emergency fund. That’s always important,” she says. “It could be used to pay down even higher interest [or] more scary debt, like credit card debt. It could be used to invest.”
Still, the SAVE plan is not a solution to the student debt crisis, and anyone planning to take on a student loan should be aware of the risks. Tu recommends that students looking into borrowing loans ask themselves, “What am I going to be able to do to pay this back, and is my degree going to be worth it? … If you come from a family that isn’t able to help you with your education, I do really encourage people to think long and hard about the major they choose [and] about where they attend school, because that [debt] could be something you end up paying back for the rest of your life,” she says. “Sometimes college can be seen as this aspirational four years where you get to learn about yourself, but you also need to think about what happens after those four years, and whether or not that’s going to leave you in a reality where you have a bunch of student debt for a degree that isn’t going to get you to your financial goals.”
College students with loans can take steps now to save up even more.
For people in classes right now, paying off loans under the SAVE plan may seem far away, but you can take measures to set yourself up for success while you’re still in school. “Your debt’s not going to start knocking on your door and be like, Hey, you owe me, you have to pay me back now until after you graduate,” Tu says. “So if you can, make money during college, whether that be picking up a part-time job at the campus gym or having summer internships that are paid, if at all possible.”
One other thing you can do? Head to your bank. “Switching from a standard savings account to a high yield savings account is so important. You’re going to get so much more in interest for doing nothing extra, and that’s so easy for everybody,” Tu says. She also recommends avoiding other types of debt where you can, including credit card debt.
The SAVE plan won’t solve all student borrowers’ problems, but it is an improvement upon the REPAYE plan, and if you qualify, you could end up saving some valuable money. You can apply by heading to the Federal Student Aid website, which also includes more information on which loans are eligible and how much your estimated monthly payment will be under the SAVE plan.