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ED: Borrowers Enrolled in SAVE Repayment Plan Expected to Remain in Forbearance for ‘Six Months or Longer’

By Maria Carrasco, NASFAA Staff Reporter

The Department of Education (ED) on Monday released an update on the status of the Saving on a Valuable Education (SAVE) repayment plan as it faces several legal challenges. 

Legal challenges to the program began in April when two groups of Republican-led states filed lawsuits that sought to prevent ED from fully implementing SAVE, and argued ED lacked the authority to carry out the new repayment program. Since then, the status of the SAVE plan has been in limbo, with the 8th U.S. Circuit Court of Appeals in July fully blocking the repayment plan for an unclear length of time. 

As a result, ED put 8 million borrowers who were able to enroll in the SAVE plan in an interest-free forbearance, under which borrowers would not get credit towards Public Service Loan Forgiveness (PSLF) or time-based forgiveness. In August, the 8th U.S. Circuit Court of Appeals extended an order blocking ED from further implementing the SAVE plan. 

According to the latest update from ED, pending further developments from the 8th Circuit Court of Appeals, the 8 million borrowers already enrolled in the SAVE plan, along with anyone who has applied for SAVE, should expect to remain in forbearance for “six more months or longer” as ED re-programs its systems. 

ED noted that it is working with servicers and contractors to update their systems “to align with the terms of the SAVE plan” based on the court injunction. This process will take several months, ED wrote. 

Additionally, borrowers should note that loan forgiveness as a benefit under any IDR plan is currently prohibited – that includes the SAVE plan, the Pay As You Earn (PAYE) plan, and income-contingent repayment (ICR) plan. Borrowers who reach their plan’s repayment milestone to receive loan forgiveness will be moved into an interest-free forbearance if they are not already. ED noted that it will still process loan forgiveness for borrowers enrolled in the income-based repayment (IBR) repayment plans. 

Additionally, as part of the legal challenges, ED temporarily removed the online application for IDR plan request forms. However, earlier this month, ED began accepting online applications for certain IDR plans again. According to the department, ED and its servicers will “soon” resume processing applications for borrowers applying for an IBR plan and “some” borrowers applying for PAYE or ICR plans. 

ED wrote that it will also take “regulatory action” this fall to reopen the PAYE and ICR repayment plans to new enrollees. According to ED, some borrowers want to enroll in these plans because they’d like to start repaying their loans to receive PSLF or IDR forgiveness credit through qualifying payments. More information on this will be shared in the coming weeks, ED wrote. 

ED also noted that it is working to improve the operations of the PSLF Buyback program, which allows some borrowers to “buy back” certain months in their payment history to make them qualifying payments for PSLF. ED is also working on creating a process to allow borrowers to “buy back” months for IDR credit in “late 2025.” More information on this will be posted on ED’s website

In its update, ED said it will continue to “vigorously defend” the SAVE plan and “our efforts to provide more affordable repayment options in court.”

A Missouri court is slated to hear oral arguments on October 24 where it will examine whether the administration has the authority to implement the SAVE plan. It is unclear how long the program will remain in limbo but these cases could make their way back to the U.S. Supreme Court.

For more details from NASFAA, see our recent article, which details the Biden administration’s debt relief efforts and our student loan relief timeline.

 

Publication Date: 10/23/2024


Jeff A | 10/23/2024 8:36:54 AM

Wonder how many colleges will lose aid due to high CDRs at the end of all of this. The policy message you don’t have to pay your loans for five years is pretty convincing.

A lot of community colleges who were in the 20% range before the pandemic should be very concerned about the 30% “no soup for you” trigger.

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