The Department of Education took additional steps this week that effectively blocks affordable repayment plans and student loan forgiveness for millions of borrowers.
The department’s actions follow a sweeping ruling by a federal appeals court last week that widened and extended an existing injunction halting implementation of the SAVE plan, a Biden-era income-driven repayment plan intended to lower monthly payments, halt runaway interest, and simplify the federal student loan repayment system while offering borrowers a pathway to student loan forgiveness. SAVE operated alongside several older IDR plans.
In response to the latest ruling, last Friday the department took down the online applications for IDR plans and for Direct loan consolidations. It appeared for several days that borrowers could still apply for these plans via a paper application, available for download through the Department of Education’s forms library. But then this week, the department removed the paper IDR application from the forms library – leaving borrowers with no means of applying for these plans. This could have profound implications for millions of student loan borrowers.
Department of Education’s Actions Related To Injunction Blocking Student Loan Forgiveness Under Key Programs
The actions by the Department of Education are seemingly related to last week’s decision issued by the 8th Circuit Court of Appeals, the court that has been handling a legal challenge brought by Republican-led states over the SAVE plan.
In its ruling, the court left in place and expanded a preliminary injunction blocking the SAVE plan. As a result, millions of borrowers who had enrolled in SAVE (or applied to enroll) will continue to be stuck in an administrative forbearance, during which no payments need to be made, and no interest should accrue. But the forbearance period doesn’t count toward student loan forgiveness for IDR plans or for Public Service Loan Forgiveness, or PSLF. The forbearance has already been ongoing for six months, with no clear end in sight.
The 8th Circuit also doubled down on blocking student loan forgiveness for the ICR and PAYE plans, two older IDR programs that were created under the same legal authority that led the establishment of the SAVE plan. The court concluded that Congress did not clearly intend to authorize loan forgiveness at the end of the 20- or 25-year repayment terms for these plans despite decades of regulations, loan promissory note provisions, and assurances made to borrowers that expressly indicated that borrowers would be entitled to loan forgiveness at the end of the term.
The court noted that student loan forgiveness under the IBR and PSLF programs, which were created separately by Congress, is not in dispute, and the underlying statute that created IBR and PSLF is not being challenged.
Department Of Education May Be Improperly Blocking Access To Student Loan Forgiveness And Lower Payments
The Department of Education uses a combined IDR application for all four IDR plans (ICR, IBR, PAYE, and SAVE). As a result, removing both the online and paper versions of the IDR application leaves millions of borrowers with no way to apply for or manage any IDR plan.
The possible ramifications of this cannot be overstated. Borrowers already enrolled in an IDR plan have a right to request a recalculation of their payments at any time due to changed financial circumstances, but they cannot do so without submitting the application. Recent graduates who must enroll in an IDR plan because they cannot afford payments under a Standard plan, or want to enroll in PSLF (being in an IDR plan is a requirement for PSLF in most cases) are unable to apply. And borrowers who are nearing the end of their student loan forgiveness term for IDR and PSLF but are stuck in the SAVE plan forbearance, or can’t get loan forgiveness under ICR or PAYE due to the injunction, are now unable to apply to change to the IBR plan, which would allow them to qualify for loan forgiveness.
Nothing in the 8th Circuit’s order suggests that access to all four IDR plans, including IBR, should be blocked. There’s no doubt that borrowers are unable to enroll or repay their student loans under the SAVE plan under the court’s injunction, and it’s also quite clear that student loan forgiveness is blocked for ICR and PAYE, as well. But the 8th Circuit does not explicitly say that borrowers cannot apply for ICR or PAYE. And perhaps most importantly, nothing in the court’s order prohibits enrollment in the IBR plan, which was created under an entirely separate statute, is not being challenged, and is not covered by the court’s injunction.
The court went into a lengthy discussion about IBR, noting that Congress clearly intended for the IBR plan to offer lower payments and eventual student loan forgiveness after 20 or 25 years.
“IBR similarly protects eligible borrowers by effectively enacting a statutory limit on how much of their income they would have to dedicate to loan repayment,” said the court. “With IBR, a borrower’s monthly payments are limited to one-twelfth of 10 or 15% of his adjusted gross income above 150% of the federal poverty line. A borrower, who otherwise must dedicate more than 10 or 15% of his adjusted gross income above 150% of the federal poverty line to loan repayment under the standard repayment plan, can choose IBR, capping his monthly payments with forgiveness available after twenty to twenty-five years of payments, as applicable based on borrowing date.”
The court also noted that borrowers in repayment under ICR, PAYE, or SAVE who would be unable to receive student loan forgiveness at the end of their repayment term as a result of the court’s legal reasoning “could switch to IBR to eventually obtain forgiveness.”
But by removing the online and paper IDR applications, the Department of Education is effectively preventing borrowers from enrolling in any IDR plan, including IBR.
“Shutting down access to all income-based repayment plans is not what the 8th Circuit ordered—this was a choice by the Trump Administration and a cruel one that will inflict massive pain on millions of working families,” said Student Borrower Protection Center Deputy Executive Director and Managing Counsel Persis Yu in a statement earlier this week. “The Administration’s cruel choice to cut off access to affordable repayment options passed by Congress and enshrined in millions of borrowers’ loan contracts comes at the same time as they are wreaking havoc on communities and families across our nation—firing thousands of federal workers, and eliminating agencies like the Consumer Financial Protection Bureau charged with protecting the finances of everyday Americans.”
Removal Of Student Loan Forgiveness And Repayment Forms Could Indicate Processing Pause
An untold number of borrowers already submitted IDR applications to the Department of Education or their loan servicer prior to the 8th Circuit’s ruling last week. The department had previously indicated in published guidance that IDR applications are indeed being processed.
But the department’s removal of the IDR forms could indicate that processing for all IDR applications may be coming to a halt. Anecdotal reports from borrowers suggest that loan servicers expect processing of IDR applications to stop. And borrowers are also reporting new correspondence sent by their loan servicer extending IDR income recertification deadlines, which suggests that loan servicers are unable to process IDR applications.
The Department of Education has not made any public announcement whatsoever, other than a banner notice on the StudentAid.gov website. The department has also not updated a website dedicated to the SAVE plan litigation since January; the guidance published on that website indicates that borrowers can apply for all four IDR plans, and that applications are being processed. The department has not responded to requests for comment, according to Yahoo Finance. Ultimately, if access to all IDR plans has been halted, millions of borrowers pursuing lower payments and student loan forgiveness face a very uncertain future.