SAVE Plan Blocked: Impact on Your Student Loan Repayment

• A federal appeals court has blocked the Biden administration’s SAVE Plan as of July 18, 2024.

• Eight million borrowers enrolled in SAVE will be placed in interest-free forbearance.

• This forbearance period does not count toward loan forgiveness programs like IDR or PSLF.

• Other income-driven repayment plans (IBR, PAYE, ICR) remain available, with PAYE and ICR currently open to new enrollments. However, application processing may be delayed.

• Borrowers should expect communications from their loan servicers about next steps.

On July 18, 2024, a federal appeals court issued an administrative stay on the Biden administration’s newest income-driven repayment plan, the Saving on a Valuable Education Plan, creating uncertainty in student loan repayment strategies.

If you’re one of the 8 million borrowers enrolled in the SAVE Plan, or if you were planning to enroll—including parents with Parent PLUS loans—this sudden change affects your loan repayment options. Enrolled borrowers are being placed into interest-free forbearance, meaning you won’t have to make payments for now, and no interest will accrue on your loans during this period.

You’re likely wondering:

• What happens to your loans now?

• How long this uncertainty will last?

• What steps you should take to protect your financial interests?

Whether you were counting on lower monthly payments, hoping for eventual loan forgiveness, or planning to use strategies like double consolidation, this court decision has likely disrupted your plans.

The Department of Education is actively working to address this situation. While online applications for income-driven repayment plans are temporarily unavailable, you can still apply using PDF forms. But be aware that there may be significant delays in processing these applications.

Don’t panic—we’re here to explain what this administrative stay means for you, what to expect in the coming months, and how to navigate this period of uncertainty. We’ll also provide information on alternative repayment options and potential ways to continue progressing towards loan forgiveness during this time.

This litigation explicitly targets the SAVE plan. Other student loan relief programs remain intact:

• This ruling does not impact the one-time account adjustment.

• Public Service Loan Forgiveness continues to operate as before.

• Existing income-driven repayment plans (like IBR, PAYE, and ICR) are unaffected.

Before we dive into the implications of the court’s decision, let’s recap what the SAVE Plan offered:

• Lower payments: The plan calculated your monthly payment amount based on your discretionary income and family size, potentially reducing your payment amount significantly compared to other plans.

• Undergraduate loan focus: Borrowers with only undergraduate loans could cut their payments in half, from 10% to 5% of discretionary income.

• Interest benefit: One of the main benefits of the SAVE plan is that it prevents unpaid interest from increasing your loan balance, offering protection against ballooning debt.

• Faster forgiveness: It offered loan forgiveness after 10 years for borrowers with original principal balances of $12,000 or less, with the timeline increasing by one year for every additional $1,000 borrowed.

• Simplified application: The plan used an IDR application that could often pull your adjusted gross income directly from your tax return, streamlining the process.

• Broad eligibility: Most federal student loans were eligible, though Parent PLUS loans required consolidation to qualify.

• User-friendly tools: Borrowers could use the loan simulator on StudentAid.gov to estimate their payments under SAVE, helping them make informed decisions.

While these were the intended benefits of the SAVE Plan, these features are unavailable due to the current administrative stay. The Education Department is actively working to defend the plan in court, but for now, borrowers should explore alternative repayment options.

 

The U.S. Court of Appeals for the 8th Circuit has issued an administrative stay on the SAVE Plan, siding with the court in Missouri (and indirectly, Kansas) and six Republican-led states that challenged its legality. This stay is a temporary order to give the court time to consider the issue. But what does this actually mean for you?

In essence, the court has temporarily prevented the Department of Education from implementing any aspect of the SAVE Plan. This isn’t just about future enrollments – it affects you if you’re already signed up.

The lower monthly payments you were expecting? They’re on hold.

The promise of faster loan forgiveness? That’s in question too.

The states challenging the plan argue that it oversteps the administration’s authority and could cost states revenue from loan servicers. They’ve labeled it an “illegal student loan plan” that unfairly shifts debt to taxpayers.

While the Department of Education strongly disagrees with this interpretation and is vigorously defending the SAVE Plan in court, it is bound by the court’s decision for now. This means it can’t implement SAVE or process any benefits under the plan until the legal challenges are resolved.

For you, this creates a period of uncertainty. The repayment plan you signed up for is effectively frozen, and there’s no clear timeline for when – or if – it will be unfrozen. However, the Department of Education has taken steps to protect borrowers during this time:

1. If you’re enrolled in SAVE, you’re being placed in interest-free forbearance.

2. If you’ve received a bill for August, you don’t need to make that payment.

3. If you haven’t received a bill for August, you won’t receive one while the stay is in effect.

The Biden-Harris Administration has pledged to continue aggressively defending the SAVE Plan in court and to pursue all available tools to reduce the burden of student loans on borrowers across the country.

U.S. Secretary of Education Miguel Cardona emphasized the potential impact of this ruling:

“Today’s ruling from the 8th Circuit blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect. It’s shameful that politically motivated lawsuits waged by Republican elected officials are once again standing in the way of lower payments for millions of borrowers.”

In the wake of the court’s decision, the Department of Education has moved quickly to protect SAVE Plan enrollees and provide alternative options. Here’s what you need to know:

The Immediate Plan: Interest-Free Forbearance

What it is: The Department is placing all 8 million SAVE Plan enrollees into an interest-free forbearance.

What this means for you:

• Your loans will be placed in forbearance, so you won’t have to make payments for now.

• No interest will accrue on your loans during this period.

• If you’ve received a bill for August, you don’t need to make that payment.

• If you haven’t received a bill for August, you won’t receive one while the stay is in effect.

• This forbearance will last until the legal situation changes or servicers are able to send bills to borrowers at the appropriate monthly payment amount.

Critical Details:

• While this forbearance prevents interest accrual, it does not count toward loan forgiveness under Income-Driven Repayment plans or Public Service Loan Forgiveness. This could significantly impact borrowers who were on track for these forgiveness programs.

• Borrowers and employers can still make payments during the forbearance. These payments will be applied to future bills due after the forbearance ends.

Alternative Options:

1. Apply for Other IDR Plans: Borrowers can still apply for other income-driven repayment plans (IBR, PAYE, ICR) by submitting a PDF application to their servicer. Online applications are temporarily unavailable. Be aware that there may be significant delays in processing applications. PAYE and ICR are currently open to new enrollments, but this could change if IDR regulations go back into effect.

2. PSLF Credit Options: Eligible borrowers may be able to “buy back” months of PSLF credit for time spent in this forbearance. Alternatively, you can enroll in a different IDR Plan, as payments made under these plans will count toward forgiveness under IDR and PSLF.

The Department of Education is working to update its systems, which could take at least 6 weeks. But due to backlogs and potential further court orders, the actual processing time for applications may be much longer.

The Biden-Harris Administration has pledged to continue aggressively defending the SAVE Plan in court and to pursue all available tools to reduce the burden of student loans on borrowers.

Can I Opt Out of the Administrative Forbearance?

While you cannot directly opt out of the administrative forbearance, there are options available if you’re concerned about how this forbearance might affect your progress toward loan forgiveness:

1. Make Voluntary Payments: Borrowers can still make payments during the forbearance. These payments will be applied to future bills due after the forbearance ends.

2. Change Repayment Plans: Borrowers who do not want to be in this forbearance can contact their servicer to change repayment plans. But  be aware that there may still be some forbearance associated with changing to certain repayment plans.

3. Consider PSLF Options: If you’re close to completing PSLF, you may be eligible to “buy back” months of PSLF credit for time spent in this forbearance. And if you still have several months or years to go before you make your 120th qualifying payment, consider switching to another IDR Plan. Payments made under other IDR plans will count toward forgiveness under IDR and PSLF.

Related: How PSLF Buyback Works

If you’re concerned about how this forbearance might affect your progress towards forgiveness, we recommend:

• Contacting your loan servicer directly for the most up-to-date information and to discuss your specific situation.

• Checking the Federal Student Aid website regularly for updates.

• Keeping detailed records of any communications about your loan status during this period.

• Carefully reviewing the terms of any alternative repayment plans before switching, as some plans may have different interest capitalization rules or other terms that could affect your long-term repayment strategy.

1. Understand your current status: If you were enrolled in the SAVE Plan, you’ve been placed in interest-free forbearance. Confirm this status with your loan servicer.

2. Monitor official communications: Watch for emails and letters from your loan servicer and the Department of Education about your loan status and any required actions.

3. Check official sources regularly: Visit StudentAid.gov and your loan servicer’s website for updates on the SAVE Plan, your loan status, and alternative repayment options.

4. Prepare financially: If possible, set aside funds equivalent to your expected SAVE Plan payments to help if payments resume under a different plan. Also, consider making voluntary payments during forbearance if you’re working towards loan forgiveness, as these payments will be applied to future bills after the forbearance ends.

5. Explore alternatives carefully: Research other income-driven repayment plans (IBR, PAYE, ICR). Be aware that online applications are currently unavailable, but you can submit PDF applications. Understand that there may be significant delays in application processing

6. Consider PSLF implications: If you’re pursuing Public Service Loan Forgiveness, explore options like “buying back” credit or enrolling in a different IDR plan to continue making progress.

7. Document everything: Keep detailed records of all loan-related communications, your loan status, and any actions you take, including when your forbearance began. If you’re pursuing loan forgiveness programs, document your employment carefully.

8. Stay informed about legislative and legal developments: Follow news about the ongoing litigation and any proposed legislation related to student loans and the SAVE Plan. Set up news alerts for terms like “student loan repayment,” “SAVE Plan,” and “student loan legislation.” And follow reputable student loan advocacy organizations for additional insights and updates.

9. Be patient but proactive: Understand that resolving this situation may take time. While waiting for updates, take steps to protect your financial interests and explore all available options.

10. Seek expert advice if needed: If your situation is complex or you’re unsure about the best course of action, consider consulting with a student loan expert or financial advisor.

11. Provide feedback: If you feel strongly about the SAVE Plan, consider writing to your congressional representatives to share your perspective and personal story. Be aware that some lawmakers are attempting to codify the SAVE Plan into law, such as the Codifying SAVE Plan Act introduced by Senator Jeff Merkley and others. Staying informed about these legislative efforts can help you understand potential future changes to student loan policies.

Scrutiny of Existing IDR Plans

The legal challenge to the SAVE Plan may lead to increased scrutiny of other IDR plans. This could potentially result in similar legal challenges to existing plans in the future. Borrowers should stay informed about the status of all IDR plans, not just SAVE, and be prepared for potential changes across the board.

Potential Legislative Action

This court decision might prompt Congress to take a more active role in student loan policy. New legislation could clarify or limit the Department of Education’s authority to create or modify repayment plans. Some lawmakers are already attempting to codify the SAVE Plan into law, such as the Codifying SAVE Plan Act. Borrowers should keep an eye on these legislative efforts as they could significantly impact future repayment options.

Shift in Loan Forgiveness Expectations

If the SAVE Plan remains blocked, it could affect borrowers’ expectations about loan forgiveness. The promise of forgiveness after 20 or 25 years of payments under IDR plans may face increased scrutiny. Borrowers should consider multiple scenarios in their long-term financial planning and not rely solely on the prospect of future loan forgiveness.

Changes in Loan Servicing

Loan servicers may need to adapt to a landscape with more frequent changes and uncertainties. This could lead to improved systems for switching between repayment plans. However, it might also result in more administrative challenges for borrowers, such as longer processing times for applications. Borrowers should be prepared for potential delays and keep detailed records of all interactions with their loan servicers.

Impact on Future Education Decisions

The uncertainty around IDR plans could influence how future students approach higher education financing. We might see a shift towards more conservative borrowing or increased interest in alternative education paths. Current and prospective students should carefully consider the long-term implications of student loans and explore all available options for financing their education.

Potential for New Repayment Models

This setback for the SAVE Plan could spark innovation in student loan repayment models. We might see proposals for new types of income-driven or hybrid repayment plans designed to withstand legal challenges. Borrowers should stay informed about any new repayment options that may become available and evaluate how they might fit into their overall financial strategy.

Increased Focus on State-Level Solutions

With federal plans facing challenges, there may be an increased focus on state-level student loan assistance programs. Some states might introduce their own income-driven repayment plans or other forms of relief. Borrowers should be aware of both federal and state-level options for managing their student loans and take advantage of any programs for which they’re eligible.

Potential Impact on PSLF and Other Forgiveness Programs

The challenges to SAVE could lead to increased scrutiny of other loan forgiveness programs, including Public Service Loan Forgiveness (PSLF). Borrowers pursuing these programs should stay informed about any changes and continue to document their eligibility carefully. It’s crucial to have a backup plan in case these programs face similar challenges in the future.

I was planning to use the double consolidation strategy for my Parent PLUS loans to enroll in SAVE. What should I do now?

You still have options if you’ve completed or were planning double consolidation for SAVE eligibility. The strategy opens access to other IDR plans not typically available for Parent PLUS loans. Consider enrolling in Income-Based Repayment as an alternative while SAVE is blocked. IBR should still offer more favorable terms than standard Parent PLUS options. However, be aware that processing of IDR applications is currently delayed, so be prepared for a wait.

How long is this forbearance expected to last?

The duration of this forbearance is currently uncertain. The Department of Education has implemented it in response to the court’s administrative stay, but the timeline for resolution is unclear. It could last for months as the legal process unfolds. The Department of Education has stated that the forbearance will last until the legal situation changes or servicers are able to send bills to borrowers at the appropriate monthly payment amount. Stay tuned for updates from your loan servicer and the Department of Education.

If I was on track for forgiveness under PSLF or IDR, how exactly will this forbearance affect my progress?

As of now, the forbearance period doesn’t count toward PSLF or IDR forgiveness. However, you have options:

1. For PSLF, you may be eligible to “buy back” months of PSLF credit for time spent in this forbearance if you meet certain criteria.

2. You can consider enrolling in a different IDR plan to continue making qualifying payments.

3. You can make voluntary payments during the forbearance, which will be applied to future bills after the forbearance ends.

Keep documenting your loan status and employment, and stay informed about potential policy changes.

Can I switch to another income-driven repayment plan during this forbearance period?

Yes, you can apply for other IDR plans (IBR, PAYE, ICR) by submitting a PDF application to your servicer. However, be aware that:

1. Online applications are temporarily unavailable.

2. There may be significant delays in processing applications.

3. Switching plans may affect your eligibility if SAVE is reinstated.

Wait for guidance from your loan servicer or the Department of Education before changing your repayment plan, and carefully consider the long-term implications of any changes.

Will there be any retroactive benefits if the SAVE Plan is eventually upheld in court?

It’s too early to determine if there will be retroactive benefits. The Department of Justice will need to interpret the ruling’s implications. For now, it’s best to wait for official guidance on potential retroactive benefits. In the meantime, consider making voluntary payments if you’re working towards loan forgiveness to avoid losing potential qualifying months.

How will this affect my credit score?

Typically, administrative forbearances don’t negatively affect credit scores. However, monitoring your credit report and staying in touch with your loan servicer is best. If you notice any unexpected changes, contact your servicer and credit reporting agencies promptly.

What happens if I have auto-debit set up for my loan payments?

If you have auto-debit set up, your loan servicer should pause these payments during the forbearance period. However, it’s best to check your account or contact your servicer directly to confirm. They should provide information about any changes to your auto-debit arrangements.

What should I do now if I’m not currently enrolled in SAVE but was planning to?

If you were planning to enroll in SAVE, it’s best to wait for now as the plan is currently blocked and enrollments are paused. In the meantime:

1. Explore other income-driven repayment options if you need payment relief.

2. Stay informed about developments with the SAVE Plan.

3. Be ready to act when more guidance is available.

4. Consider applying for other IDR plans using the PDF application process if you need immediate relief.

Remember that there may be significant delays in processing applications, so plan accordingly.