ED Files Memorandum in Opposition to American Federation of Teachers’ IDR Lawsuit
By Megan Walter, Senior Policy Analyst
Update: On Wednesday, April 16, the under secretary of education filed a correction of a previous declaration, stating that the spouse will be included in family size for married-filing-separately (MFS) filers, but spousal income will not be. The article below examines the implications of ED’s initial memorandum in opposition.
On April 8th, the Department of Education (ED) published a memorandum in opposition to the recent restraining order filed against them by the American Federation of Teachers (AFT), in which AFT charged that ED was blocking borrowers’ progress toward Public Service Loan Forgiveness (PSLF) and affordable monthly payments, by removing the online application for income-driven repayment (IDR) plans.
ED responded to the concerns about the application in late March, re-opening the online application for IDR plans, with the exception of Saving on a Valuable Education (SAVE). However, the processing of IDR applications has still not been restarted.
Now, in its written response to the lawsuit, ED has provided more information on its plans for IDR in anticipation of an imminent court order stemming from the ongoing SAVE plan litigation.
The recently back online IDR application, which removed the SAVE plan as an option for repayment, also removed the ability for borrowers – regardless of IDR plan selected – who filed married-filing-separately (MFS), to have their monthly payment amount based solely on the borrower's income. In the memo, ED said “Education expects that by May 10, 2025, servicers will implement the treatment of spousal information for ICR, PAYE and IBR such that married borrowers filing separate income tax returns or separated from their spouses will have spousal income counted for the purposes of calculating monthly payment amount under IDR plans, which is a required consequence of the Eighth Circuit’s opinion directing a broadened preliminary injunction”. ED’s interpretation in reading the Eight Circuit court’s opinion has come under scrutiny for being excessively broad and inconsistent with the intended scope of the court's ruling, as ED concluded that not only the SAVE plan must be enjoined, but all the provisions included in the final rule package published in the Federal Register in which the SAVE plan was created, including modifications to the other IDR plans.
The Higher Education Act (HEA) states that under Income Based Repayment (IBR), MFS borrowers shall have their monthly repayment amounts based solely on their income. For the Income Contingent Repayment (ICR) plans, which includes the Pay As You Earn (PAYE) plan as well as currently stalled SAVE, the HEA does not directly specify how MFS borrowers are to be treated. In the negotiated rulemaking process, the Revised Pay As You Earn (REPAYE), the plan which the SAVE plan replaced, was the only IDR plan that did not base monthly repayments solely on the MFS borrower’s income. In the final rules for the REPAYE plan, ED noted that the statutory language for the ICR plans (ICR, PAYE, REPAYE) was vague enough in how to treat MFS borrowers that they could legally require that monthly repayments for MFS borrowers be based on both their and their spouse’s incomes. ED also justified this change during the negotiated rulemaking conversations as a cost-cutting measure. REPAYE offered a significantly more generous interest subsidy than IBR or PAYE, and ensuring that total household income was included in the calculation for the borrower’s repayment amount helped offset the costs associated with the plan. By not reviving REPAYE, ED plans to use its broad interpretation of the 8th Circuit decision to eliminate the MFS spousal income exclusion across all IDR plans, including IBR where the statutory language is much clearer. It is unclear how ED would implement such a change and whether it could withstand potential lawsuits.
In the memo, ED also announced that federal loan servicers are expected to resume processing new applications for ICR, PAYE, and IBR, including placing former SAVE borrowers into these plans they applied to be moved, by May 10, 2025. ED did not address the date of SAVE plan borrowers who did not elect to move to a new repayment plan.
While processing will begin on May 10th, given the backlog of applications due to delays stemming from the SAVE plan litigation, the actual processing is expected to move slowly, so ED will place borrowers who are waiting to be moved into an IDR plan into an automatic processing forbearance for up to 60 days, or until the processing of their application is complete, whichever is earlier. Any applications that are pending for over 60 days will be moved into the general administrative forbearance. While time in the processing forbearance will count towards Public Service Loan Forgiveness (PSLF), it will not count towards eligibility for time-based forgiveness under IDR plans. The general forbearance will not count towards eligibility for either program.
The IDR application being down also prohibited borrowers who were due for their annual recertification of income and family size from completing the process. To address that, ED directed loan servicers to move the recertification deadline for borrowers who were required to certify their income and family size after the application became temporarily unavailable and were currently enrolled in ICR, PAYE, or IBR repayment plans one year into the future. Servicers are already extending the recertification deadline for affected borrowers and expect that affected borrowers will see those updates in their accounts by April 26, 2025.
Some borrowers who were unable to complete their recertification saw increased monthly payment amounts as a result. In the memo ED announced that it will adjust their monthly payment amount to equal the amount in place prior to their recertification date by May 10, 2025. Borrowers who did not make payments at the higher amount will be placed in an administrative forbearance that will cover the period of delinquency. Those months would not count towards PSLF or general time-based forgiveness.
Publication Date: 4/15/2025
Ben R | 4/15/2025 2:6:31 PM
This depends on how you view reduced payments. If these are another form of financial aid, then it makes sense to use household, not individual income. This aligns with how we determine eligibility for Pell grant as well as a number of other federal assistance programs. A reduced/subsidized payment is arguably a household benefit and allowing separation of income comes with same hazard as counting only student income for Pell grant eligibility.
Amanda P | 4/15/2025 12:25:03 PM
It makes no sense counting spousal income for MFS borrowers, especially for IBR. How is NASFAA pushing back? Can we expect AFT to respond?
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