SAVE vs PAYE: Which Plan Is Best for Medical Students?

Attending medical school comes with its ups and downs.

For one, it’s quite an expensive venture, leading more than 70% of students to depend on student loans to help see them through.

Yet, there’s still a problem of choosing the right repayment plan.

While SAVE and PAYE may seem like the two obvious options, they both have certain pros and cons that make choosing a plan complicated.

Thankfully, this article will help explore these plans. We’ll compare SAVE vs PAYE side by side to help you determine which plan is best for your financial situation.

Key Takeaways

  • SAVE and PAYE are part of the income-driven repayment plan (IDR)
  • SAVE is best for undergraduate loans
  • PAYE is best for graduate debt
  • Both plans are most suitable for low-income earners
  • The SAVE plan is only available to direct federal student loan borrowers
  • To qualify for a PAYE plan, you need to be a new borrower who took out your first loan after October 1, 2007

PAYE vs SAVE: Compared at a Glance

Features SAVE Plan PAYE Plan
Monthly Payment Based on 5% – 10% of discretionary income Based on 10% of discretionary income
Income Calculation Adjusted Gross Income (AGI) minus 150% of the poverty guidelines for your family size and state AGI minus 150% of the poverty guidelines for your family size and state
Eligibility Only Direct Loans; borrowers with high debt relative to income Only Direct Loans; must be a new borrower
Interest Subsidy 100% of unpaid interest on subsidized loans for the first three years 50% of unpaid interest on subsidized loans for the first three years
Loan Forgiveness After 20 or 25 years of qualifying payments After 20 years of qualifying payments
Capitalization of Interest Unpaid interest is not capitalized Unpaid interest is capitalized if you leave PAYE or no longer qualify
Annual Recertification Required Required

What Is an Income-Driven Repayment Plan (IDR)?

An IDR refers to federal student loan plans that are offered to students with repayment terms based on their income or family size.

Compared to conventional loans that offer a stipulated amount and interest fee, an IDR helps students keep their loan terms in good shape.

One of the key benefits of an IDR is loan forgiveness, which can depend on your chosen loan type.

For instance, your balance for an undergraduate-only loan usually gets forgiven after about 20 years of timely payments. Graduate loans usually last the longest: up to 25 years.

There are several types of IDR plans, including.

  • SAVE: Saving on a Valuable Education
  • PAYE: Pay As You Earn Repayment
  • IBR: Income-Based Repayment
  • ICR: Income-Contingent Repayment

For this guide’s purposes, we’ll only discuss and compare the first two plans.

What Is a SAVE Plan

Saving on a Valuable Education, or SAVE for short, was launched in 2023 by the Biden administration as a replacement for the Revised Pay As You Earn (REPAYE) repayment plan.

The major difference between the SAVE Plan and other IDR plans is in the way your monthly payment is calculated.

Under this plan, you pay 5% of your discretionary income as a monthly payment instead of 10%.

This also means that if, for instance, you earn $12 per hour, you won’t have an available discretionary income to calculate your monthly repayment.

Hence, your obligation is $0 per month.

How Do You Qualify for a SAVE Plan

Getting into the SAVE Plan is easier if you already have a direct federal loan. You can simply submit an application through your lender.

However, if you don’t have a direct federal student loan, you’ll have to consolidate yours into one before applying.

The application process involves a series of questions about your family size and income.

Your lender would also have to verify your eligibility through your tax returns.

Pros and Cons

Pros Cons
Payments are based on 10% of discretionary income Only Direct Loans qualify, unless consolidated
Loan balance is forgiven after 20 or 25 years Borrowers must recertify their income and family size
Interest subsidy helps prevent outrageous loan balances due to unpaid interest Managing the plan’s terms can be complex
Ideal for those in residency or early career stage and low-income Debt can linger for a significant period of one’s career

What Is the PAYE Plan

The Pay As You Earn Plan is another IDR plan that’s closely similar to the SAVE Plan. It forgives your remaining balance after 20 years of timely repayment.

However, its capitalized interest is what primarily sets it apart from other plans.

The PAYE plan caps payments to 10% interest on discretionary income.

For instance, on a $100,000 loan under PAYE, your accrued interest would be $10,000 instead of $15,000, as with other loans.

This capped interest reduces your future interest amount.

How Do You Qualify for a PAYE Plan

There are two ways to enroll in the PAYE plan. The longest route would be to email your loan servicer with an income-driven repayment request.

However, the best method would be to fill out an online application.

First, visit and log in using your ID, or create an account if you don’t have one. Then, select the IDR repayment plan request.

Usually, the form requires you to submit documents like taxable income earned in the past 90 days, or your tax returns.

Pros and Cons

Pros Cons
The government pays 50% of unpaid interest on subsidized loans for the first three years Lower payments can extend the repayment period
Payments are capped at 10% of discretionary income Only available to new borrowers who took out their first loan after October 1, 2007
Interest capitalization is limited if borrowers no longer qualify for PAYE Forgiven loan amounts may be considered as taxable income
Limits monthly payments, encouraging responsible repayment practices

When You Should You Choose SAVE

If the following criteria apply to you, SAVE might be the superior option:

  • High Debt Relative to Income: The SAVE Plan can help you manage monthly payments if you have a significant amount of student loan debt compared to your current income.
  • Low Initial Income: During periods like residency, where your income can be low, choosing SAVE can be beneficial
  • Interest Subsidy Needs: You can choose SAVE to help prevent your loan balance from growing excessively over the years, considering the plan provides a 100% interest subsidy on unpaid interest.
  • Long-term Commitment: If you intend to hold a low-paying job or work in public service for long, the SAVE Plan’s eventual loan forgiveness can work best in your favor.
  • Large Family Size: A larger household reduces your discretionary income, which brings you more advantages with the SAVE plan.

When You Should Choose PAYE

If you feel like this describes your situation better, you should opt for the PAYE plan:

  • New Borrowers with Eligible Loans: PAYE has certain eligibility criteria that are suitable for new borrowers. If you took out your first federal student loan after October 1, 2007, and received a disbursement after October 1, 2011, you should consider this option.
  • Stable Family Size and Income: PAYE provides predictable monthly payments that adjust annually if your family size is stable and unlikely to change in number.
  • High Debt-to-Income Ratio: When your student loan debt is high compared to your current earnings, PAYE can help cap your monthly payments at 10% of discretionary income. This makes the payments more manageable.
  • Limits Interest Capitalization: PAYE limits the repayment cap to 10% of unpaid interest, which can be beneficial if you leave the plan or no longer qualify.

Can You Switch Plans?

Thankfully, one of the benefits of IDR plans is that you can easily switch between them as long as you meet the respective requirements.

  • SAVE Requirements: Loans must be direct Federal student loans
  • PAYE Requirements: You must be a borrower from October 1, 2007, or after, and have received a loan on or after October 1, 2011

If you meet the requirements for the plan you want to switch to, you can proceed to switch plans by following the steps below.

Step One: Application Process

Fill out the income-driven repayment plan request form.

It’s used to apply to any IDR plan you want to switch to. Ensure that you indicate that you want to switch plans.

You can also contact your loan officer to discuss the process if you find it challenging. They can provide you with the necessary guide.

Step Two: Income and Family Size Documentation

Several documents are acceptable here. For income verification, you can submit one of the following documents.

  • Tax returns
  • Pay stubs
  • Letter from employer
  • Self-employment income statement

These documents are acceptable for family size verification:

  • Birth certificate
  • Marriage certificate
  • Legal guardianship documents

PS: Most IDR plans allow you to self-certify your family size.

You can simply state the number of people in your household on the IDR application form by yourself.

How to Determine If an IDR Plan Is Your Best Option

Choosing an IDR Plan can be a very beneficial decision. However, whether or not you’ll actually benefit from it depends largely on your concrete situation.

We’ll show you how to determine if you need an IDR Plan or not.

Access Your Debt-to-Income Ratio

IDR plans are most beneficial to those with student loan debt considerably higher than their current income.

The plan can help reduce your student loan payments to a more manageable level.

Consider Your Income Trajectory

Given that IDR plans would benefit you if your earnings are low, you might want to consider if your career path would lead to higher earnings in the near future.

If this happens, you might outgrow the benefits of IDR plans, as your payment will increase along with your income.

Check Your Financial Goals

Calculate the total amount you’ll repay over time, including interest and loan forgiveness impact.

If this aligns with your long-term goals, then you can take an IDR. Otherwise, try exploring alternative options.

Understand the Plan’s Features

Before signing up for an IDR, learn about the payment calculations, interest subsidy, and loan forgiveness features.

Also, try to understand how the changes in your income and family size could impact payments.

Use Loan Calculators

You can find loan calculators online to help you estimate your monthly repayment amount under different IDR plans.

This will help you calculate, compare, and evaluate if they’re even right for you.

Another rather professional approach is to consult with experts like Physicians Thrive for professional guidance.

They can assess your financial situation and help you determine the best route.

Compare IDR Plans with Other Repayment Options

For your other options, you can choose between a standard repayment plan and a graduated plan.

Compare the monthly payment and total repayment of IDR plans with these listed options.

A standard plan, for instance, has a repayment duration of 10 years. Compared to IDR plans with longer duration, you can choose this option if you intend to pay off your loans quickly.

Get Professional Help from Professional Physicians

Joining an IDR plan, whether it’s a SAVE or PAYE plan, can make a major difference in your finances.

This is why you should take proper care before making a final decision.

SAVE plans are suitable for those with undergraduate debt and low earnings, considering its student loan forgiveness structure.

PAYE, on the other hand, is more suitable for those with graduate debts.

Its cap on interest makes it easier for you to pay lower interest even when you’re out of the plan.

Still, deciding which plan to pick can be tricky. This is why it’s desirable to seek professional help beforehand.

Contact Physicians Thrive today to get access to all the help you need to scale through your medical school debt.

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