Choosing the right plan can help in reducing your student loan repayments, in this article we examine the differences and peculiarities of each to help you make the best choice.

What Is PAYE?

PAYE (Pay As You Earn) is an alternative repayment plan in the United States for federal student loan repayments. It differs from fixed repayment plans because it is based upon the income of the borrower. The payment amounts will be determined by the income of the borrower.

PAYE offers eligible borrowers of federal student loans the chance to reduce their monthly payment to 10% their discretionary income. It can be a significant relief to those who are facing financial difficulties or have lower incomes. After a period 20 years, the remaining balance of the loan will be forgiven. This provides additional assistance to borrowers.

PAYE is  one of the many payment assistance programs that are available to students who borrow student loans. These programs are designed to offer support and flexibility to those who struggle to meet their repayment obligations. The goal of offering income-based payment options such as PAYE is to make repayment of student loans more affordable and manageable for borrowers.

What Is SAVE?

1. Saving on a Valuable Education Plan is a special program designed to provide more affordable repayment options for borrowers of federal student loans in the United States. The SAVE Plan is a better alternative to the Revised Pay As You Earn plan (REPAYE). The SAVE Plan calculates monthly payments based solely on loan balance and not on income or family size. This allows borrowers to make more manageable payments and better aligned payments with their financial situation.

2. SAVE Plan offers the lowest monthly payment of all Income-Driven Repayment (IDR) Plans available to most borrowers. This program allows borrowers to prevent their loan balances from increasing as long as they meet the payment requirements. They can then allocate their income to other essential needs, rather than having to worry about high student loan repayments. In addition, undergraduate loan borrowers could see further reductions to their payments beginning in summer 2024.

3. Online application for the SAVE Plan can be done in a simple and straightforward manner. Log in with your FSA ID to and then access the IDR Application. The borrower will need to enter their personal information and income, and then choose the plan with the lowest payment. This is usually the SAVE Plan. The loan servicer will then process the application in approximately four weeks after receiving the email confirmation. This initiative, according to the Biden-Harris Administration, could help over 20 million borrowers. It builds on previous efforts that have helped millions of Americans reduce their student loan debt.

Eligible loansDirect Loans; FFEL and Perkins Loans if consolidated (loans made to parents are ineligible)Direct Loans, Direct PLUS loans, Direct Consolidation Loans (loans made to parents are ineligible); FFEL, FFEL Plus, FFEL Consolidation, and Perkins Loans if consolidated
Repayment term20 years20 years for undergraduate loans, 25 years for graduate loans
QualificationMay have to prove financial hardshipAll borrowers with qualifying federal education loans
Payment cap10% of discretionary income, no more than payments for standard 10-year repayment planNone
Interest subsidyGovernment pays surplus interest charges on subsidized loans for three yearsGovernment pays remaining interest exceeding monthly payments
Marriage penaltySpouse’s income is not considered if married filing separatelySpouse’s income is not considered if married filing separately

What to note

The PAYE and SAVE payment programs provided for federal student loans present borrowers with opportunities to reduce their monthly payments. Each program considers eligibility status, income, and marital status in distinct ways, underscoring the significance of evaluating these criteria before selecting a program.

Categories: Guides

David Brown

He is a writer covering financial news and trends. He has over 7 years of experience as a finance writer. He and his team are dedicated in providing a comprehensive resource for students and parents to make choices based on accurate and latest information in the student loan space.


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