Millions of student loan borrowers remain stuck in limbo as a court challenge over a key Biden administration debt relief program continues. The ongoing litigation threatens reduced payment programs and student loan forgiveness on a broad scale.
Biden officials launched the SAVE plan, a new income-driven repayment plan, last year. Designed to dramatically reduce borrowers’ monthly payments, at least eight million Americans enrolled or were switched over from other IDR plans over the following nine months. SAVE also provides multiple pathways to eventual student loan forgiveness.
But court challenges, led by Republican officials in more than a dozen states, have scrambled the SAVE plan and the broader federal student loan system. After the 8th Circuit Court of Appeals issued an injunction blocking SAVE in August, borrowers who had enrolled or applied to the program were placed in a forbearance while the litigation continues. During the forbearance, no payments are due and no interest should accrue, but the time won’t count toward student loan forgiveness under IDR plans or Public Service Loan Forgiveness, a popular program for borrowers working in nonprofit or government jobs. At the same time, much of the wider IDR system has been suspended as the Education Department has worked to update its systems to comply with the sweeping court order.
Here are the latest updates on the SAVE plan forbearance, and what borrowers need to know as the court challenges continue.
IDR Application To Leave SAVE Plan Forbearance And Progress Toward Student Loan Forgiveness
Since the SAVE plan forbearance period will not count toward student loan forgiveness under IDR or PSLF, some borrowers may want to consider switching to a different IDR plan. But while the Education Department had indicated that it would accept new IDR applications, the online IDR application system was “temporarily unavailable” as officials worked to update the department’s internal systems (although borrowers could submit paper IDR applications). Official guidance indicated that IDR processing was paused entirely, and borrowers should expect lengthy delays.
As of at least Monday, however, access to the online IDR application appears to have been restored. This means that borrowers should be able to log in and apply to switch to a different IDR plan if they want to (and borrowers who need to enroll in IDR for the first time can now do so). For most borrowers who had enrolled in SAVE, the only alternative IDR program would be Income-Based Repayment, or IBR. Two older IDR plans — Income-Contingent Repayment and Pay As You Earn — have been phased out for most borrowers. At least some borrowers are reporting that IDR requests may be getting processed, although the Education Department has not yet confirmed this.
Borrowers should be aware that payments under IBR may be significantly higher than they would have been under the SAVE plan. And IBR does not have the generous interest-waiver benefits that the SAVE plan does.
IDR Recertification Requirements Unclear During SAVE Plan Forbearance
Under IDR plans, student loan borrowers must periodically recertify their income to update their monthly payment amount. Changes to income could result in modifications to monthly payments. And failure to recertify on time has historically led to potentially serious consequences, including interest capitalization and lost progress toward student loan forgiveness.
Due to the Covid-19 forbearance and subsequent extensions issued by the Biden administration, many borrowers have not had to recertify their income for the past several years. But with the last extensions coming to an end, many borrowers will need to recertify their income for IDR plans in the coming weeks and months. The Education Department has provided no official guidance for what these borrowers should do.
However, with the online IDR application now back up, borrowers who must recertify their income should be able to do so online. Whether borrowers who remain in the SAVE plan forbearance must recertify or not remains an open question, however.
Student Loan Consolidation Application Is Back Online
In addition to cascading effects throughout the IDR system, the SAVE plan litigation has also impacted Direct loan consolidation, a process by which federal student loan borrowers can combine existing loans into a new Direct loan. The Education Department had also taken down the online consolidation application during the last two months as a result of the SAVE plan injunction. Borrowers could apply to consolidate using a paper application, but this is a much more tedious process.
As of at least Monday, the online Direct consolidation appears to have been restored. In conjunction with the restoration of the online IDR application, borrowers who need to consolidate their loans can now also select an IDR plan for that consolidation. This is particularly important for borrowers in default on their federal student loans. With the Fresh Start program now having ended, Direct loan consolidation could be an alternative pathway for defaulted federal student loan borrowers to restore their loans to good standing. However, defaulted borrowers must select an IDR plan for their Direct consolidation loan in order to get out of default.
PSLF Buyback Option For SAVE Plan Forbearance Remains Murky
For borrowers on track for PSLF, one option for trying to get student loan forgiveness credit for the SAVE plan forbearance period would be to utilize PSLF Buyback. This new program, part of regulatory updates that were finalized in July 2023, gives borrowers an opportunity to “buy back” certain deferment or forbearance periods that don’t count toward student loan forgiveness under the PSLF program.
PSLF Buyback has a number of restrictions, however. Most notably, borrowers cannot apply until they have 120 months of certified qualifying public service employment. Furthermore, the bought back months (if approved) must then complete the borrower’s 120 qualifying payments. This is a fairly new and untested program.
One area that the Education Department has still not clarified is how the PSLF Buyback amount would be calculated for those who have been in the SAVE plan forbearance. According to department guidance, the buyback amount would be based on what the borrower’s monthly IDR payments were at the time that they entered into the non-qualifying forbearance, multiplied by the number of months spent in that forbearance. However, if the SAVE plan remains blocked or gets overturned, it’s unclear if the buyback amount would be based on the SAVE plan repayment formula, which is far more affordable than other IDR plans in most cases. If the buyback amount would be based on a different plan, such as IBR, the total amount needed to “buy back” the SAVE plan forbearance period for PSLF may be much more expensive than borrowers realize.
Key IDR Student Loan Forgiveness Court Hearing Is This Month
The SAVE plan litigation isn’t just putting the SAVE plan itself in legal jeopardy. Student loan forgiveness under other IDR plans could also potentially be at risk.
The Biden administration created the SAVE plan under a provision of the Higher Education Act, which Congress passed more than 30 years ago, authorizing repayment plans based on income with a finite repayment term. Using that authority, multiple administrations have created several IDR plans by drafting regulations, all of which call for student loan forgiveness after 20 or 25 years.
But the Republican state officials leading the legal challenges are arguing that Congress did not expressly authorize student loan forgiveness under the 1993 Higher Education Act. Biden administration officials and borrower advocates counter that Congress clearly intended for balances to be discharged under IDR plans no later than 25 years into repayment, pointing to extensive legislative and regulatory history, language in Master Promissory Notes, and bipartisan guidance issued to borrowers for more than three decades.
A key hearing on this dispute is scheduled for the last week of October. If the 8th Circuit Court of Appeals adopts these arguments, it could jeopardize student loan forgiveness under several IDR plans — not just the SAVE plan, but also ICR, PAYE, and REPAYE (which preceded SAVE).
Notably, IBR was established through separate Congressional authority, and the enabling statute for IBR expressly calls for student loan forgiveness at the end of 20 or 25 years.
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