Income-Based Repayment (IBR) vs. SAVE for Student Loans

If you owe money on a federal student loan, you may be able to qualify for a repayment plan that will lower your payments and, ultimately, provide for partial forgiveness of the debt. Income-Based Repayment (IBR) and Saving on a Valuable Education (SAVE) are two popular repayment plans that include forgiveness. The two plans are similar in that they base the amount of your monthly payments on your discretionary income and family size. One significant difference is that IBR may set the payment amount as a larger percentage of your discretionary income.

A financial advisor can help you evaluate your options for repaying outstanding student loans.

How Income-Based Repayment (IBR) Works

Income-Based Repayment (IBR) is a federal student loan repayment plan designed to make monthly payments more affordable based on your income and family size. Instead of paying a fixed amount, borrowers typically pay 10% to 15% of their discretionary income, depending on when they first took out loans. The goal is to align payments with your ability to pay, helping borrowers avoid default while maintaining progress toward loan forgiveness.

Your monthly payment under IBR is based on your discretionary income, the difference between your adjusted gross income and 150% of the federal poverty guideline for your household size and state. This ensures payments remain manageable, even if your earnings fluctuate. If your income rises significantly, your payments can increase, but they’ll never exceed what you’d pay under the standard plan.

IBR also offers loan forgiveness after a set repayment period. For borrowers who first took out loans before July 1, 2014, any remaining balance is forgiven after 25 years of qualifying payments. For those with newer loans, forgiveness comes after 20 years. While forgiven balances may be taxable depending on federal law at the time, this feature provides a safety net for borrowers who carry long-term debt.

How SAVE Works

The Saving on a Valuable Education (SAVE) Plan is the newest income-driven repayment (IDR) option for federal student loans, replacing the former REPAYE plan. Like IBR, SAVE ties your monthly payment to your income and family size, but it’s designed to be more generous and flexible. It aims to make repayment easier for lower- and middle-income borrowers while minimizing the long-term cost of borrowing.

Under the SAVE plan, your monthly payment equals 10% of your discretionary income, but with a key difference: the plan redefines “discretionary income” more favorably. It excludes 225% of the federal poverty guideline, compared to 150% under IBR, meaning a larger portion of your income is protected from repayment. For many borrowers, this results in significantly smaller monthly payments, with some qualifying for payments as low as $0.

One of the biggest advantages of SAVE is how it handles interest. If your monthly payment doesn’t cover all the interest that accrues, the government covers the remaining amount so your balance doesn’t grow. This prevents “interest creep,” a common frustration with older repayment plans. Additionally, SAVE offers loan forgiveness after 20 years for undergraduate loans and 25 years for graduate loans, similar to IBR but with potentially lower total payments along the way.

Comparing IBR and SAVE Main Features

The Standard Repayment Plan is the default option for federal student loan borrowers. This plan sets the monthly payment amount using the amount of the loan, the interest rate and a payoff date within 10 years. For some borrowers, the size of the monthly payment under the Standard Repayment Plan puts too much pressure on their monthly cash flow so they explore one of the student loan forgiveness programs offered by the U.S. Department of Education.

IBR and SAVE are two of these programs. Both are income-driven repayment plans. This means the size of the payment is based the amount of the monthly payment on the borrower’s income and household size. Both also offer forgiveness. After making payments for either 20 or 25 years, depending on the loan type and date, any remaining balance is forgiven, so the borrower doesn’t have to repay it.

One noticeable difference between the two plans is the maximum size of the monthly payment compared to the borrower’s income. With SAVE, borrowers currently won’t have to pay more than 10% of their monthly discretionary income. IBR borrowers may have to devote as much as 15% of discretionary income each month to repaying their education loans.

Here’s a chart summarizing the key features for each plan as they are currently set up:

Plan	Basic Payment	Years of Payments
SAVE	10% of discretionary income	20 or 25
IBR	10% or 15% of discretionary income	20 or 25

SAVE Pros and Cons

A woman thinking about repaying her student loans.

SAVE is a new program introduced in 2023. For the first year, payments for SAVE borrowers were limited to 10% of the borrower’s discretionary income. As of July 2024, the percentage declines to 5% on undergraduate loans.

Because SAVE payments are always derived from income and family size, a SAVE borrower whose income increases could have to make larger monthly payments than if they had stayed with the Standard Repayment Plan. Because of this, some borrowers who anticipate large increases in their income may consider a different repayment plan. Borrowers with lower and middle incomes, however, are likely to see significantly lower payment amounts, as low as zero in some cases.

Original SAVE offers 20-year forgiveness for most loans that pay for undergraduate education. If the loan is for a graduate or professional degree, the time period is 25 years. For smaller loans of $12,000 or less, starting in February 2024, SAVE allows forgiveness in as soon as 10 years.

SAVE also has a full government interest subsidy. This subsidy means that, as long as the borrower pays what is due every month, none of the unpaid interest will be added to the loan’s balance.

Borrowers with most types of federal direct loans are eligible for the SAVE forgiveness program. This includes Direct PLUS loans and Direct Consolidation Loans. Parent loans, including consolidation loans that include parent loans, and loans from private lenders, including private consolidation loans, are not eligible for this federal program. Loans currently in default are also not eligible.

IBR Pros and Cons

IBR has similar eligibility requirements as SAVE. It also sets payments for new loans using 10% of discretionary income and a 20-year timeline. IBR borrowers who took their initial loans out before July 1, 2014, however, may have a payment based on 15% instead of 10% of income.

The timeline for forgiveness is another difference. Unlike SAVE, graduate and undergraduate loans are treated the same with a 20-year timeline. However, older loans are treated differently. With IBR, loans taken out before July 1, 2014, use a 25-year timeline.

Another potentially important difference is that IBR caps payments at the Standard Repayment Plan amount. This may make the IBR more appealing to borrowers who expect their incomes to rise significantly.

Like SAVE, IBR has an interest subsidy, but the subsidy is limited. Rather than paying all the unpaid accrued interest, the government will only pay a portion of it.

Bottom Line

A woman calculating how much she will have to repay in student loans.

SAVE and IBR are two important student loan forgiveness programs offered by the federal government. Each bases monthly payment amounts on the borrower’s disposable income and family size, and offers to forgive remaining unpaid balances after 20 or 25 years of making payments. IBR may be more attractive to borrowers who expect their incomes to rise significantly, while SAVE can be a good choice for lower- and middle-income borrowers. In July 2024, SAVE will offer a 10-year forgiveness for smaller loans and cap some payments at 5% of the borrower’s disposable income.

Tips for Education Planning

If you are looking into one of the student loan forgiveness programs, a financial advisor can help you evaluate options and see which one best fits your situation. Finding a financial advisor doesn’t ahve to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Estimate the amount of your monthly education loan payments with the help of SmartAsset’s Student loan calculator.