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Does SAVE Plan eliminate all interest or it simply prevents principal from increasing due to excess interest?

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Abbey Johnson, Helping with Student Loan Documentation
Answered on October 02,2023

If your principal balance is $8,000, your interest accrued is $50, and your payment is $30, under SAVE that $30 will go towards the $50 accrued interest, $20 of interest will be forgiven, and your principal balance will still be $8,000. SAVE does not eliminate ALL interest in favor of paying towards principal, it eliminates excess interest that would have accumulated and added to your balance.

Under previous IDR plans, if the same numbers applied, your balance would increase to $8,020 after your payment was made due to the excess of interest over the payment amount.

save plan payment interest calculation

The remaining $20 will not be charged, but the $30 will and is what your payment is applied to as a payment to any loan goes to interest before principal. Your principal will not go down if your payment is below your accrued interest, but you should be doing a jig because it won’t increase either. This is still a huge win for many since accumulated interest has made many student loans insurmountable.

So in short, payments less than accrued interest = principal balance stays exactly the same.

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Ultimate Guide on SAVE Plan - Payment Calculation, Interest, Forgiveness

Under the Saving on a Valuable Education (SAVE) plan, a single borrower who makes less than $15 an hour will not have to make any payments. Borrowers earning above that amount would save mor..
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