WASHINGTON, DC – JULY 14: U.S. President Joe Biden delivers remarks on the White House on July 14. … [+]
The Biden administration will grant forbearance and pause payments to thousands and thousands of student loan borrowers this week. The Education Department’s motion follows a key court order last week that blocked reduced payments and halted student loan forgiveness under a key initiative.
President Joe Biden’s latest SAVE plan is a brand new income-driven repayment initiative designed to supply lower payments and faster debt relief than previous IDR options. More than eight million borrowers have signed up for SAVE or switched from other IDR plans, in response to administration officials. But with the reduced payments set to take effect this month, two groups of Republican-led states have filed dual lawsuits to dam this system. After a rollercoaster of rulings that halted only certain elements of SAVE, the eighth Circuit Court of Appeals blocked the complete plan last week, throwing this system into turmoil.
With no time to right away implement the court’s order, the Department of Education quickly announced it will take several actions, including deferring the eight million borrowers currently enrolled in SAVE. Here’s what which means for borrowers.
Interest-free payment deferral while legal challenges to student loan forgiveness proceed
During the deferment period, borrowers would not have to make any repayments on their student loan. And no interest is charged either.
“Borrowers enrolled in the SAVE plan will be placed in forbearance,” the brand new Department of Education said Orientation aid published on Friday. “During the forbearance, SAVE borrowers are not required to make any payments.” In addition, “SAVE borrowers will not accrue interest on their loans during the forbearance.”
In this regard, the brand new SAVE forbearance can be modeled on previous administrative forbearances implemented by the Department of Education last yr within the wake of loan processing complications that impacted several federal student loan forgiveness and repayment plans.
The deferral period won’t count toward student loan forgiveness, including PSLF
But unlike previous government deferrals, SAVE’s deferral period won’t count toward student loan forgiveness under IDR or PSLF, a program geared toward borrowers who work in public service.
“The period of deferment will not count toward public service loan forgiveness or income-driven repayment (IDR) loan forgiveness,” the Department of Education said in its latest guidelines.
This puts thousands and thousands of borrowers who’re on course for student loan forgiveness under PSLF and IDR in limbo for now. And the timing is particularly bad for PSLF borrowers since the department just unveiled a brand new PSLF tracking dashboard earlier this month.
IDR applications temporarily removed
Separately, the Department of Education announced that it will shut down online applications for IDR plans and direct loan consolidation following last week’s court order. The department must update its internal systems to comply with the order, which can take a while.
As of Monday, the web applications for IDR and Direct Loan Consolidation on the department’s website at StudentAid.gov have been grayed out and inaccessible.
“On July 18, 2024, a federal court issued a stay preventing the Department of Education from implementing the Saving on a Valuable Education (SAVE) plan,” said a message on the IDR and Direct Loan Consolidation web sites. “We are reviewing the ruling and will be contacting borrowers directly to discuss how this will impact them.”
This implies that borrowers enrolled in SAVE and in forbearance could also be prevented (at the least for now) from switching to a different repayment plan to proceed working toward debt relief under PSLF or IDR.
Future of the SAVE plan and student loan forgiveness uncertain
The Ministry of Education has not given any indication of how long the leniency is anticipated to last. Given the various court rulings in recent weeks, the situation stays very uncertain. Government officials cannot understand how long the chaos will last or whether it would worsen.
“Borrowers affected by this court decision will hear from their loan servicers and/or the Department in the coming days,” the brand new policy states. “The Department will continue to update this page and pages on StudentAid.gov with communications about what it means for borrowers.”
As the litigation over SAVE’s reduced payments and student loan forgiveness continues, it’s becoming increasingly likely that the Supreme Court will ultimately step in. The court is already considering an appeal that features a separate legal challenge to the SAVE plan by the tenth Circuit Court of Appeals, which – unlike the eighth Circuit – had temporarily allowed SAVE to proceed. When district courts issue different rulings on the identical legal issue of national importance, the Supreme Court is much more likely to think about the challenge.
“The Biden-Harris administration will continue to aggressively defend the SAVE plan in court and will continue to use all available tools to reduce the burden of student loan debt on borrowers across the country,” the department’s guidance said.
