Millions of borrowers are in student loan forgiveness limbo, as key Biden administration initiatives remain bogged down in court and administrative delays are impacting broad swaths of the federal student aid system. But making the wrong move now could have costly consequences.
The SAVE plan, President Joe Biden’s signature income-driven repayment program, was blocked by the 8th Circuit Court of Appeals this past summer in response to a legal challenge filed by a group of Republican-led states. SAVE lowers payments, cancels excess interest, and gets borrowers on track for eventual student loan forgiveness, typically after 2o 0r 25 years. But due to the court’s injunction, which prohibits the Education Department from implementing most of the SAVE plan, millions of borrowers have been thrown into a forbearance. While payments and interest are frozen for these individuals, the period doesn’t count toward student loan forgiveness.
The SAVE plan injunction has had broader impacts, too. Loan servicers haven’t been able to process income-driven repayment applications for any IDR plan, not just the SAVE plan. And the Education Department is currently prohibited from approving loan forgiveness for borrowers enrolled in the Pay-As-You-Earn and Income-Contingent Repayment plan, as well. Borrowers who were enrolled in the SAVE plan and also were on track for Public Service Loan Forgiveness, or PSLF, have also been impacted as their loan forgiveness progress has been halted.
Borrowers have options during this tumultuous time. But making a mistake now could lead to higher payments or additional processing delays. Here’s what to watch out for.
Don’t Apply For SAVE Plan To Pursue IDR Student Loan Forgiveness
Under current law, all IDR plans (not just SAVE) result in eventual loan forgiveness after 20 or 25 years in repayment under those programs. IDR plans use formulas applied to a borrower’s income and family size, resulting in relatively affordable monthly payments, even for borrowers with large balances.
Technically, borrowers can still apply for the SAVE plan, even while the program remains blocked.
“Borrowers are still permitted to apply for IDR plans, including SAVE (previously known as REPAYE), even though the court has enjoined some of the SAVE and other IDR plan provisions, including forgiveness,” says Education Department guidance.
But as a practical matter, most borrowers not currently enrolled in SAVE will not want to apply for that plan. Those who apply for the SAVE plan will simply be put into a forbearance. While the forbearance will pause payments and interest, the time won’t count toward loan forgiveness under either IDR or PSLF. Moreover, the 8th Circuit appears to be poised to strike down the SAVE plan. If that happens, the incoming Trump administration may simply choose not to appeal the decision, effectively killing the program. This could force borrowers to choose a different repayment plan.
Choose The Right Option If Leaving SAVE To Pursue Student Loan Forgiveness
For some borrowers pursuing student loan forgiveness through IDR or PSLF, applying to change to a different IDR plan could be the right move. In most cases, the only alternative IDR plan at this time would be Income-Based Repayment, or IBR, which can be much more expensive than the SAVE plan. The Education Department recently announced officials are taking steps to bring back the ICR and PAYE plans, as well.
But borrowers applying to change repayment plans should be aware of some important considerations. First, borrowers should expect higher payments — potentially much higher than whatever they were projected to pay under the SAVE plan. That’s because for most people, other IDR plans are simply more expensive. And borrowers should expect lengthy processing delays, as most of the IDR processing system has been largely shut down since August.
Importantly, in the IDR application borrowers should specifically select the alternative IDR plan that they want to enroll in (again, presently the only option for most borrowers is IBR). Those who select the option allowing their loan servicer to choose the plan with the “lowest monthly payment” could face even longer processing delays, according to the department, because processing will remain suspended for these requests.
“Servicers will have applications in the queue that will take some time to work through” once loan servicers begin processing IDR requests, says the Education Department. But, “Processing for all other applications, including SAVE (formerly known as REPAYE) applications and applications where borrowers checked ‘lowest monthly payment’ will remain paused.”
Submitting Multiple IDR Applications Could Complicate Student Loan Forgiveness Progress
Borrowers are, quite understandably, frustrated by the ongoing IDR processing delays. The longer borrowers remain in the SAVE plan forbearance, the more progress is effectively lost toward student loan forgiveness.
But the answer is not to submit multiple IDR applications. Doing so may lead to complications and potentially even more severe processing delays. Servicers will have to review and process each individual IDR request, and having multiple pending applications could lead to lengthy reviews, or even rejections of an application.
If you think you made a mistake on an IDR application that’s already been submitted (and hasn’t yet been processed), first contact your loan servicer to cancel that pending IDR request. Then, you can submit a new IDR application. It’s best to submit the request via the StudentAid.gov portal.
Direct Loan Consolidation May Be Necessary For Student Loan Forgiveness, But Now Isn’t A Great Time
Some borrowers need to consolidate their loans via the federal Direct consolidation program to qualify for certain student loan forgiveness programs. For example, borrowers with FFEL-program loans must consolidate those loans into the Direct loan program to qualify for PSLF.
After the 8th Circuit’s injunction was issued in August, the Education Department took down the online IDR application portal, as well as the online portal for Direct loan consolidation. Officials needed to update their internal systems to ensure compliance with the ruling, and that took time.
The Direct consolidation application is now back online, so borrowers are free to consolidate. However, IDR processing is still largely paused. So borrowers who are consolidating their loans and choosing an IDR plan for their new consolidation loan may not be able to immediately enroll in an IDR plan after consolidating. This could be particularly problematic for those who have fairly large student loan balances, where normal Standard plan payments may simply be unaffordable. Borrowers looking to consolidate and apply for IDR may want to wait until IDR processing resumes and is in full swing, before submitting a consolidation application.
Borrowers Pursuing Student Loan Forgiveness Through PSLF Should Use Electronic Employment Certification
The good news for borrowers working in public service careers is that PSLF is not blocked by the 8th Circuit and is not subject to any legal challenge at this time. The bad news, though, is that PSLF borrowers have been directly impacted by cascading problems throughout the federal student loan system.
Enrolling in an IDR plan is a requirement for most borrowers pursuing student loan forgiveness through PSLF. So PSLF borrowers who were in SAVE, need to apply for IDR for the first time, or must recalculate their IDR payments have all been adversely impacted by the legal battles over the SAVE plan and the associated injunction, forbearance, and IDR processing pause.
But PSLF also recently went through a servicing platform transition. PSLF processing and tracking was previously housed through MOHELA, one of the Education Department’s contracted loan servicers. As of July, PSLF tracking is now housed at StudentAid.gov. And after a lengthy processing hiatus, the department has resumed processing PSLF employment certifications and has cleared out much of its backlog.
However, borrowers are reporting significant differences in processing times for PSLF employment certifications. Those who use the online system via the department’s PSLF Help Tool are seeing their forms processed relatively quickly, in some cases in just a couple of weeks. But borrowers who manually submit a hand-signed form, particularly if it was submitted prior to or during the PSLF platform transition last summer, are experiencing multi-month delays. The Education Department has strongly encouraged people to use the online system for faster, more accurate PSLF processing.