Federal Student Loan Borrowers Get Payment Break as SAVE Plan Battles Legal Challenges
The U.S. Department of Education has placed federal student loan borrowers enrolled in the Biden administration’s new income-driven repayment plan, known as SAVE, into an administrative forbearance. This means eligible borrowers will not have to make any payments on their student loan debt, and interest will not accrue on their loans, while the legal battle surrounding the SAVE plan plays out.
Key Takeaways:
- No payments required: Eligible borrowers in the SAVE plan will be granted a temporary reprieve from monthly payments.
- Interest freeze: During this forbearance, interest will not accrue on the loans.
- Legal challenges: The SAVE plan has faced legal challenges, with courts blocking its implementation.
- Uncertainty: The future of the SAVE plan remains uncertain, as the legal battles continue.
- Potential impact: This forbearance could delay the process of loan forgiveness for borrowers enrolled in SAVE.
The SAVE Plan: A Target for Controversy
The Saving on a Valuable Education Plan, or SAVE, was met with considerable controversy upon its rollout in the summer of 2023, with the Biden administration hailing it as "the most affordable student loan plan ever."
The SAVE plan boasts two key provisions that have sparked legal challenges:
- Lower monthly payments: It offers lower monthly payments than any other federal student loan repayment plan.
- Quicker debt erasure: It leads to faster debt forgiveness, particularly for those with smaller loans.
Legal Challenges: A Battle for Control
Republican-led states have filed lawsuits against the Education Department, alleging that the SAVE plan oversteps its authority. These states argue that the department is attempting to indirectly forgive student debt, a move that was blocked by the Supreme Court in June 2023 when it struck down the Biden administration’s sweeping student loan forgiveness plan.
Prior to the legal challenges, the Education Department had already forgiven $5.5 billion in student debt for 414,000 borrowers through the SAVE plan. Experts believe that those who have already received relief under the plan will likely not be affected by the legal battles.
The SAVE Plan’s Uncertain Future
On July 18, 2024, a federal appeals court in Missouri issued a ruling that blocked the entire SAVE plan. The Education Department has vowed to defend the plan, but its future remains shrouded in uncertainty.
The Impact of the Forbearance on Borrowers
This forbearance differs from past payment pauses on student loans in a significant way: months spent in this forbearance will not count towards borrowers’ progress towards loan forgiveness.
This means that those enrolled in SAVE who are hoping to eventually see their debt cleared under the plan’s terms, or through the Public Service Loan Forgiveness (PSLF) program, will not receive credit towards their loan cancellation timelines. The PSLF program allows eligible non-profit and government employees to have their loans forgiven after making 10 years of payments.
"Borrowers cannot opt out of this forbearance because the SAVE repayment plan is temporarily blocked," explained higher education expert Mark Kantrowitz. "Borrowers can explore their other repayment plan options, but that would lead to a higher monthly loan payment."
"By staying in the SAVE plan, the borrower doesn’t lose anything other than time," he added.
Navigating the Unsettled Landscape
The current legal situation leaves borrowers in a state of uncertainty. While the forbearance offers temporary relief from payments and interest accrual, it also stalls progress towards debt forgiveness. For borrowers seeking loan forgiveness, this pause represents a significant setback, as it adds to the overall time spent repaying their loans.
As the legal battles unfold, borrowers need to stay informed and monitor developments to understand the implications of both the SAVE plan and its temporary suspension. Engaging with loan servicers is crucial for obtaining guidance on available options and ensuring they make informed financial decisions.
The future of the SAVE plan remains unclear, but the current forbearance underscores the ongoing challenges of student loan debt in the United States. The legal challenges and their impact on borrowers highlight the need for clear and consistent policies that address the complexities of student loan repayment, ensuring fairness and opportunity for all individuals seeking to achieve financial stability.
