The Biden administration said that millions of borrowers stuck in student loan forgiveness and repayment purgatory due to legal challenges involving the SAVE plan may have a long way to go before any resolution, according to new guidance published by the Education Department.
The SAVE plan, the newest of several income-driven repayment plans, had reduced monthly payments for eight million borrowers when the program first went into effect last fall. The program has several other benefits, including a subsidy that prevents loan balances from ballooning due to runaway interest accrual, and eventual student loan forgiveness in as little as 10 years for borrowers who took on small amounts of debt.
But the SAVE plan is now in legal limbo. A group of Republican-led states filed lawsuits last spring – after more than eight million borrowers had enrolled – to stop the program. And so far, they have succeeded. In August, a federal appeals court issued an injunction blocking the program, which forced any borrower who had enrolled or applied for the SAVE plan into a forbearance. Borrowers won’t have to pay their student loans during the forbearance period and no interest will accrue, but the time won’t count toward student loan forgiveness. This effectively halts the clock for borrowers pursuing debt relief under both IDR plans as well as Public Service Loan Forgiveness, or PSLF.
Last week, the Education Department issued new guidance clarifying expectations for how long the SAVE plan may last, and offering some hints for what borrowers may want to consider if they want to continue pursuing student loan forgiveness.
SAVE Plan Forbearance Could Go On For Another 6 Months Or Longer
The SAVE plan forbearance has already been in effect for more than two months, halting progress toward student loan forgiveness under IDR and PSLF for more than eight million borrowers. Until now, though, the Education Department had provided no concrete information on how long the forbearance could be expected to last.
That changed last week, when the Education Department issued updated guidance notifying borrowers that the SAVE plan forbearance could last at least another half a year — and possibly longer.
“Borrowers in SAVE and anyone who has applied for SAVE should expect to remain in interest-free general forbearance for six more months or longer, pending further developments from the 8th Circuit Court of Appeals,” said the department on Thursday.
But it’s possible the forbearance could last longer than that. While a ruling from the 8th Circuit could be issued at any time in the next month or two following a critical hearing that took place last week (coincidentally, on the same day that the Education Department issued its updated guidance), any such ruling will almost certainly be appealed to the U.S. Supreme Court. The nation’s highest court does not release immediate rulings and would likely need to schedule oral arguments. The soonest any final decision would be issued would be sometime in the summer of 2025.
Student Loan Forgiveness Remains Blocked Under SAVE Plan And Other IDR Plans
The Education Department also confirmed in its updated guidance that student loan forgiveness remains blocked for now under the SAVE plan and other IDR plans that were established under the same legal authority. This includes the PAYE plan and ICR, both of which were phased out last summer in conjunction with the rollout of SAVE. The 8th Circuit’s sweeping injunction, which the Biden administration characterized in legal papers as “vastly overbroad,” is now directly impacting borrowers enrolled in other IDR plans.
Borrowers who are in PAYE and ICR can still make payments and progress toward student loan forgiveness on IDR’s 20- to 25-year terms, as well as PSLF. But borrowers enrolled in SAVE, PAYE, or ICR who reach the threshold for IDR loan forgiveness would not receive a discharge while the litigation continues. Instead, they would be put into a forbearance, according to the Education Department. The 8th Circuit appears poised to rule that student loan forgiveness under these other plans should be struck down, despite more than 30 years of regulations, loan promissory note provisions, and bipartisan guidance that borrowers would receive a discharge at the end of the 20- or 25-year repayment term.
Student loan forgiveness under the IBR plan, however, remains available, as Congress established IBR through a separate legal authority that is not currently being challenged in court.
New Potential Workarounds For Pursuing IDR Student Loan Forgiveness
In its updated guidance, the department suggested that new workaround solutions could be coming that may allow borrowers to continue to pursue IDR student forgiveness, despite the ongoing SAVE plan injunction and forbearance.
First, the department indicated that officials will be initiating a regulatory process this fall to restore access to the PAYE and ICR plans. These programs had been largely phased out in conjunction with the establishment of the SAVE plan (with the exception of borrowers who were already enrolled in those plans, and consolidated Parent PLUS which are still allowed to access ICR). Eligible borrowers may be able to switch to these plans fairly soon, although no timeline was provided.
In addition, the new guidance indicates that the Education Department is in the process of developing an “IDR Buyback” program. While few details were included in the new guidance, the option is likely to be modeled on the PSLF Buyback program, which allows borrowers to “buy back” the time spent in a non-qualifying forbearance period (such as the SAVE plan forbearance) so that the period can count toward student loan forgiveness. Payments would likely be based on what the borrower’s IDR payments would have been if they had officially been in repayment under an IDR plan at that time. However, IDR Buyback is not expected to be available until late 2025. The department expects to provide more information on this as-yet-developed option in the coming weeks.
IBR Remains Available To Pursue Student Loan Forgiveness
Meanwhile, the IBR plan – which is not blocked by the 8th Circuit’s injunction – remains available. And the Education Department confirmed in its updated guidance that IDR processing, including for applications to change to the IBR plan, will resume soon.
Switching to the IBR plan would allow borrowers to resume making progress toward student loan forgiveness on a 20- or 25-year IDR term, and payments made under other IDR plans would count toward IBR loan forgiveness. In addition, IBR is also a qualifying repayment plan for PSLF.
However, borrowers should be aware of some potential downsides. Payments under IBR may be higher than they were under the SAVE plan, particularly if a borrower’s income has increased since their last income recertification. In addition, IBR does not have the interest benefits associated with the SAVE plan, so some borrowers may experience balance growth while in IBR, or interest capitalization if they later switch plans.
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