In July 2024, the SAVE repayment plan was halted as the courts review recent legal actions brought by Republican elected officials. This action immediately stops the SAVE repayment plan. Borrowers enrolled into SAVE will be placed into an “interest-free forbearance”. During this administrative forbearance, borrowers will not receive credit for Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) Forgiveness. The timeline for a resolution is uncertain.
I’ll cover the key points to be aware of and how this should impact your student loan plan.
Key Points
1.) No Interest Growth: During the legal proceedings, borrowers in the SAVE repayment plan will not accrue interest. This is a nice perk, acting similarly to an interest subsidy.
2.) Administrative Forbearance: Generally, administrative forbearance count towards loan forgiveness. However, the Dept of Education is clear this administrative forbearance does not count as credit. No payments are required at this time.
3.) Federal Website Applications Down: Many borrowers are rushing to switch payment programs or consolidate their federal student loans. However, the online applications for both are currently unavailable. Paper applications can be submitted in the meantime. Some servicers even allow you to upload your application on their website. Here’s a helpful link to walk you through this process. These applications can take months to process.
4.) Forgiveness Progress Pause: Time spent in this legal forbearance does not count towards forgiveness. Thereby, potentially postponing forgiveness for borrowers.
5.) Resolution Timeline Uncertain: This situation remains fluid and borrowers should be prepared for more information to appear before a final resolution is reached. Unfortunately, they have not given a timeframe on how long this decision will take. If it does reach the Supreme Court it’s possible it could take until Summer 2025.
6.) Previous IDR Plans Phased Out: On July 1, 2024, the Pay As You Earn (PAYE) and Income-Contingent Repayment Plan (ICR) were phased out to new entrants. With SAVE tied up in the courts, borrowers can only apply to IBR or SAVE for now.
What is happening to SAVE?
The SAVE repayment plan was introduced last year through Proposed Rulemaking. Republican elected officials argue this program is too generous, too costly and should have gone through Congress. Multiple legal motions have been filed to remove the SAVE program.
While SAVE is tied up in the courts, payments and interest have been paused.
How do these changes impact those in SAVE or enrolling into it?
SAVE is currently halted for over 8 million borrowers. Many have seen their payments placed on a temporary pause. During this pause, no interest will accrue on your loans. In addition, the clock for loan forgiveness has stopped. To continue your clock for loan forgiveness you have two options:
1.) switch into a different Income-Driven Repayment Plan or
2.) apply for PSLF buyback
Lot’s of borrowers have been temporarily placed into a standard repayment plan with very high monthly payments. If that payment is unaffordable you can call your servicer to request a forbearance while the legal case plays out.
Which repayment plans can I enroll into?
If you are pursuing PSLF or IDR forgiveness, you can enroll into an Income-Driven Repayment (IDR) plan. Income-Based Repayment (IBR) or Saving On a Valuable Education (SAVE) are the two current IDR plans. Previously, you could also enroll into Income-Contingent Repayment (ICR) or Pay As You Earn (PAYE) plans. Both were phased out on July 1, 2024.
Of those two IDR plans, SAVE is generally the cheapest monthly payment. However, SAVE is not currently qualifying for either forgiveness track due to the legal proceedings. IBR could be an alternative to the SAVE program. If you need help selecting the best IDR plan for you, schedule a consult with us.
If you’re not pursuing a federal loan forgiveness track, you can opt for a time based option such as standard (usually over 10 years) or 25-year extended.
Should I switch repayment plans?
Many borrowers are looking to switch repayment plans to continue their progress for loan forgiveness. If you have not recertified your income for years and your income has increased, switching to IBR now will result in higher payments. When you switch repayment plans they require current income to recalculate your payment. As a result, it may be best to wait for a resolution before making any changes (see below on PSLF Buyback). However, if you are in residency, your income has dropped or hasn’t changed since you last certified, switching to IBR might be beneficial, as your payments could be comparable to SAVE monthly payments. You don’t want to miss out on payments now counting towards loan forgiveness. Especially if you’re still in training.
If you’re in IBR, PAYE or ICR, it’s best to stay in them in the meantime while this all plays out.
If you are not on track to PSLF, enrolling into SAVE can be helpful as it pauses interest. This should allow you to put more money into the principal on the loan. Or, you can save the money you would have been putting into the loans into a HYSA and make a lump sum payment on the loans when payments resume. This way, you’re setting aside money for the student loans and earning a little bit of return on your dollars. Please note, it is taking months for them to process IDR applications.
PSLF Buyback for “interest-free forbearance”
Last year, the Department of Education introduced PSLF Buyback. This allows borrowers to buy back previous months when they were in forbearance. Borrowers are required to make a lump sum payment of whatever their payment would have been in an IDR plan for those previous months. Borrowers are eligible to apply once they’ve reached 120 qualifying months.
Time during the “interest-free forbearance”, while SAVE is in the courts, may be eligible for PSLF Buyback. If the Dept of Education was more clear that these months “will qualify” I would be telling everyone to stay in SAVE and not switch to another IDR plan. This way, you would have no payments, frozen interest and still receive credit for loan forgiveness. However, because these months may not qualify for PSLF Buyback (aka PSLF credits) I’d rather have some of you not risk losing these months as credit for PSLF and switch into another IDR plan. This point is clarified in the above section (“Should I switch repayment plans?).
Everyone should apply for PSLF Buyback for this time if they are working in public service.
If SAVE is struck down what payment plan will I be placed in?
If SAVE is removed, it’s possible they would reinstate Revised Pay As You Earn (REPAYE) the predecessor to SAVE. We expect servicers to update you on your payment plan options if you can no longer remain in the SAVE program.
If they end SAVE will loan forgiveness also be eliminated?
Loan forgiveness such as PSLF could be eliminated by Congress. However, there is not enough bipartisan support (currently) to spearhead such an intiative. In addition, if PSLF or IDR forgiveness is eliminated, we believe those already in either program would be grandfathered in.
How long will the legal proceedings take?
It is possible SAVE could be brought before the Supreme Court just as student loan forgiveness was last year. If it does reach the highest court in the land, there’s a good chance with the conservative majority SAVE is blocked. The Supreme Court rulings could go into Summer 2025.
We understand this can be an extremely frustrating time as we approach our election season this fall. As additional information becomes available, we will continue to update you on SAVE, student loan forgiveness and student loan policy that is applicable to you.
If you need help navigating student loan repayment, schedule an appointment with us today!
