Last week, 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.) 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. These applications can take up to three months to process.
4.) Forgiveness Progress Pause: Time spent in this administrative 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.
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 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. However, the clock for loan forgiveness has also stopped.
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.
Should I switch repayment plans?
Many borrowers looking to switch repayment plans. The Income-Based Repayment (IBR) plan is still available as an alternative to the SAVE repayment plan. However, IBR is generally more expensive and does not have the generous interest subsidy. If you have not recertified your income for years and your income has increased, switching to IBR now will likely result in higher payments. It may be best to wait for a resolution before making any changes. However, if you are in residency or your income is currently low, switching to IBR might be beneficial, as IBR payments could be comparable to SAVE payments under low income. You don’t want to miss out on low payments now counting towards loan forgiveness.
If you’re in IBR, PAYE or ICR, it’s best to stay in them in the meantime while this all plays out.
If SAVE is struck down what payment plan will I be placed in?
If SAVE is removed, it’s possible they would reinstate REPAYE, PAYE and ICR. Currently, the only IDR option aside from SAVE is IBR. We expect servicers to update you on your payment plan options if you can no longer remain in the SAVE program.
If they eliminate SAVE will loan forgiveness also be eliminated?
Loan forgiveness such as public service loan forgiveness could be eliminated by Congress. However, there is not enough bipartisan support 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!
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