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Which is better SAVE or PAYE for Student Loan?

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Abbey Johnson, Helping with Student Loan Documentation
Answered on September 28,2023

SAVE vs PAYE is harder to weigh in general, especially since they have different discretionary income calculations and handle interest differently.

For most people when weighing PAYE vs SAVE with grad/professional loans, they need to scratch paper out if PAYE's 20 years' worth of repayment is cheaper overall than SAVE's 25 years (for grad loans) with the nicer discretionary income calc and unpaid interest waiver.

The "cap" that PAYE has (never more than the 10-year Standard plan amount at the time you signed up for PAYE) vs the unpaid monthly interest waiver that SAVE has is a big part of what you need to weigh, along with estimating what the tax bill would be on the forgiven amount

So SAVE only waives unpaid monthly interest after you make your required payment. To run some examples: if your loans accrue $50 in interest a month and your payment is $30, then you'd see $20 in interest waived after you make that $30 payment.

If your loans accrue $50 in interest a month and your required payment is $75? Then there is no interest to be waived, you get nothing extra

PAYE doesn't waive any interest, so any monthly unpaid interest will pile up but if you're pursuing PSLF or your income is likely to hit that PAYE payment cap? Then it may be worth it to stay on the plan anyway

SAVE Pros: Subsidize interest and Lower monthly payment. 

PAYE Pros: Shorter repayment period.

SAVE Cons: Longer repayment period.

PAYE Cons: Higher monthly payment and no interest subsidy.

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Guide

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..
  Click here to get a detailed guide

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