Because the fully implemented version of SAVE charges borrowers less for undergraduate loans, it is necessary to separate undergraduate debt from graduate debt. If you have a consolidated loan, please do your best to estimate which portion of the debt is graduate and which portion is undergraduate.

This calculator has been updated to include the 2024 federal poverty level guidelines, so it should be as accurate as possible.

Subsidy Calculator

What is the Purpose of the SAVE Subsidy?

Historically, many borrowers qualified for IDR plans with monthly payments lower than the monthly interest charges on their loans.

When this happened, IDR enrollment could mean that the balance grew considerably.

This made it harder for IDR borrowers to repay their debt, and it created the possibility of a larger tax bill if the debt was forgiven.

With the SAVE subsidy, borrowers don’t have to worry about their balances increasing.

How is the SAVE Subsidy Calculated?

This calculator estimates your SAVE payment and compares it to the expected monthly interest charges on your loans.

To understand the basics of the SAVE subsidy, check out this article that explains how it works.

Maximizing the Benefit

If you qualify for the subsidy, the Department of Education once suggested making extra payments to attack the principal balance. This would be a big mistake as extra payments reduce the subisdy amount that a borrower receives.

Additionally, borrowers who find ways to shelter income from IDR payments can further increase their subsidy. My favorite strategy is to set money aside in a retirement account.

The post SAVE Subsidy Calculator appeared first on The Student Loan Sherpa.

The calculator below was created using the exact terms as defined in the federal registrar. The Department of Education has also released a fact sheet that provides a nice summary of the new SAVE plan.

Sherpa Tip: This calculator estimates SAVE payments using the fully implemented SAVE calculation. This means that undergraduate and graduate loan balances are needed. Scroll down for more details.

It has been updated to include the new 2024 Federal Poverty Level Guidelines.

REPAYE, New REPAYE, and SAVE

The new SAVE plan will essentially replace several different IDR plans.

Notably, the REPAYE plan has been completely replaced by SAVE plan.

By July 1, 2024, the transition from REPAYE to SAVE should be complete. At that time, the calculations become even more favorable for borrowers with undergraduate debt.

The calculator above is designed to help borrowers project payments on the final version of SAVE. If you enrolled before July 1, 2024, your payment should drop in July if you have any undergraduate debt. If you have only undergraduate debt, the July 1 changes should cut your payment in half.

Want to Sign Up? Signing up for SAVE is easy, but there are some mistakes borrowers will want to avoid.

Important Eligibility Notice

All federal student loans would be eligible for this repayment plan except for two notable exceptions.

FFEL Loans and Perkins Loans – FFEL and Perkins loans are not eligible for SAVE but could be made eligible through federal direct consolidation.

Parent PLUS Loans – Parent PLUS loans are not eligible for any IDR plan other than the income-contingent repayment plan (ICR). The proposed changes would not alter this rule. Unlike FFEL loans, a simple consolidation does not fix the Parent PLUS eligibility issue. However, the double-consolidation loophole may work for the borrowers who complete the process in time.

Note for Married Couples

Calculating monthly payments without counting spousal income is now possible with the SAVE plan. This is a significant change from REPAYE, where married couples could not file separately to exclude spousal income from monthly payment calculations.

If you file separately, enter only your adjusted gross income in the line asking about income. If you are filing jointly, please enter your combined income.

Calculator Shortcomings

This calculator is not a perfect tool. There are some potential issues that borrowers using it should understand.

• The SAVE Plan could change. It’s possible that Congress passes legislation or someone files a lawsuit that causes the new plan to get blocked. Such an event is unlikely, but it remains a possibility.
• Mistakes happen. If a number gets transposed or there is confusion about eligibility, payments might not happen exactly as you hoped.
• Calculations for married couples get complicated. If you and your spouse both have federal student loans, filing separately may become extra beneficial under the new plan. That calculation is a bit more complicated and will be available in a future update.
• No Cap on SAVE Payments. If you have a small loan balance and a large income, it’s possible that you might be better off enrolling in a balance-based plan such as the 10-year plan or the graduated repayment plan. In this scenario picking a different IDR play might also make sense.

Plan Highlights and Other Benefits

The big headline is the lower payments that you have probably seen after using the calculator.

These lower payments happen for two main reasons. First, discretionary income gets redefined for the SAVE plan. Previous calculations used a discretionary income of 150% of the federal poverty level. This new plan would use 225% of the federal poverty level.

Additionally, undergraduate borrowers only pay 5% of their discretionary income toward their loans. In the past, it was a minimum of 10%. Borrowers with only graduate debt will still pay 10%. This isn’t really fair to teachers and social workers, but it is still an improvement. Those with a mix will pay a weighted percentage between 5% and 10%. For this reason, the calculator asks about undergraduate and graduate debt.

Beyond the lower payments, there are some other significant changes:

• Borrowers with balances of $12,000 or less are eligible for forgiveness after just ten years instead of the standard 20. This benefit is available starting July 1, 2024.
• The already excellent REPAYE interest subsidy will cover 100% of a borrower’s unpaid monthly interest. This benefit is available from day one of the restart. Use this calculator to estimate the value of the monthly SAVE subsidy.
• Borrowers can file separately to reduce the marriage penalty.

Repayment Plan Alerts

Because we are dealing with some legal challenges to the new repayment plan, I’ve set up a mailing list to notify readers of any big changes.

At most, you will receive one email per month. The idea is to highlight the critical changes and essential deadlines that borrowers need to know.

The post SAVE Calculator: Estimate Payments on Biden’s New IDR Plan appeared first on The Student Loan Sherpa.

What is discretionary income for student loans?

Your discretionary income is crucial when calculating student loan payments on income-driven repayment (IDR) plans.

The government defines discretionary income slightly differently, depending on your repayment plan. If you sign up for SAVE, your discretionary income is the money you make above 225% of the federal poverty level in your state. Borrowers on IBR and PAYE get the less favorable number of 150% of the federal poverty level. Finally, ICR uses 100% of the federal poverty level for discretionary income calculations.

If the math seems complicated, monthly discretionary income calculations can be made using the calculator above.

Why does my discretionary income matter for student loan payments?

If you have federal student loans, some of the best repayment plans are income-driven repayment plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Saving on A Valuable Education (SAVE). These plans are the best because your student loan payment is based on what you can afford rather than how much you owe. For many borrowers, this can result in a significant reduction in minimum monthly payments. In some cases, borrowers qualify for $0 per month payments.

Under IBR, the Department of Education expects you to pay 15% of your discretionary income towards your student loans. The PAYE and SAVE plans reduce that number to 10%. Details like your marital status and when you first borrowed a student loan will impact which Income-Driven Repayment Plan is best. When the SAVE plan is fully implemented, borrowers will pay between 5% and 10% each month.

But what exactly is discretionary income for student loans?

Before paying anything under IBR or PAYE, the government lets you keep 100% of your salary up to a certain point. That number is set at 150% of the poverty level. According to the Department of Education, this is the non-discretionary portion of your income. The federal poverty level changes yearly and is based on your family size. For 2024, the numbers look like this:

Household Size	150% of Poverty Level
1	$22,590
2	$30,660
3	$38,730
4	$46,800
5	$54,870
6	$62,940
7	$71,010
8	$79,080

*Note: these numbers are for the 48 Contiguous States… Alaska and Hawaii have slightly higher numbers.

When calculating student loan payments, your discretionary income is every dollar (pre-tax) that you make above the numbers listed on the table. Suppose your house size is three, and you make $50,730 per year. In this example, your discretionary income would be $12,000 per year. We get this number by subtracting the $38,730 for a family of three from the $50,730 yearly salary.

Calculating your payments in 2024

Once you determine your monthly discretionary income, multiply that number by the percentage your repayment plan charges. For example, suppose you had a monthly discretionary income of $1,000. If you were on the old IBR plan charging 15%, your monthly payment would be $150; if you were on PAYE getting charged 10%, your monthly payment would be $100.

Note: the exact calculation will vary depending on how you verify your income with your lender. Some people use their two most recent pay stubs, while others use last year’s taxes. If you use your most recent tax form, it will use your Adjusted Gross Income or AGI.

Why is discretionary income an unfair calculation?

How much you can truly afford to pay depends upon a whole lot more than just the size of your family. Unfortunately, these factors are not considered. If you have medical bills, owe child support, or have other private student loans, your discretionary income does not change.

The 48 contiguous states are all treated the same. Whether you live in rural Kansas or San Francisco, the numbers do not change. Applying the exact same standard without adjusting for the cost of living means some borrowers will have a discretionary income that exaggerates how much they can reasonably afford.

Sheltering income from discretionary income calculations

However, as noted earlier, for most people, income is based upon their AGI.

Borrowers can keep this fact in mind when doing their tax planning.

My favorite strategy is to put money in tax-advantaged retirement accounts like a 401(k) or traditional IRA. Putting money in an eligible retirement account will result in a lower AGI.

Putting some money in a traditional IRA will do the following:

• Lower monthly student loan payments,
• Lower the amount spent on taxes, and;
• Build retirement savings.

The approach is especially powerful for borrowers working towards student loan forgiveness because it means more debt will be forgiven in the end.

Unfortunately, not all borrowers are in a position to set aside extra money for retirement. The good news is that there are other ways to lower your AGI. Borrowers should seek out tax breaks that are considered to be above-the-line. I’ll skip the details on AGI calculations, and just point out that any above-the-line deduction will reduce the AGI.

The post Student Loan Discretionary Income Calculator  appeared first on The Student Loan Sherpa.