For federal student loan borrowers, it’s a tough environment right now as they navigate how to manage their debts. Many of them had pinned their hopes on the Saving on a Valuable Education (SAVE) plan introduced during the Biden administration. However, this plan has hit a legal snag, thanks to challenges led by Republican forces.
In addition, changes from the Trump administration have affected various repayment plans, presenting a complex landscape for borrowers. To manage your student loan payments effectively and aim for a debt-free future, it’s crucial to evaluate your options and fully grasp the terms of your repayment plan. Here’s a rundown of what you need to keep in mind as the lending system undergoes substantial challenges.
### How the SAVE Plan Was Stopped
In February, the SAVE plan faced a major setback when a U.S. appeals court halted it. The 8th U.S. Circuit Court of Appeals sided with seven Republican-led states that sued the U.S. Department of Education, alleging that Biden was trying to bypass the Supreme Court’s earlier decision against his comprehensive debt cancellation initiative. SAVE was attacked in court for two primary features: its lower monthly payments and its expedited debt forgiveness for those with smaller balances.
### No Definite End to Forbearance
With SAVE entangled in legal issues, the Biden administration decided to place borrowers in interest-free forbearance. This means, if borrowers choose, they can continue pausing their payments. According to Scott Buchanan from the Student Loan Servicing Alliance, there’s currently no set date for the end of this forbearance period. However, unlike the pandemic-related pause, this forbearance doesn’t grant credit towards loan forgiveness under income-driven repayment plans or Public Service Loan Forgiveness (PSLF).
Traditionally, income-driven repayment (IDR) plans cap borrowers’ payments as a portion of their discretionary income, forgiving remaining debt after 20 to 25 years. The PSLF program, established under President Bush in 2007, helps certain employees in public service have their loans forgiven after ten years.
### Exploring Other Options
For some borrowers in the SAVE forbearance, staying put might be wise, suggests higher education expert Mark Kantrowitz. Not having to make payments can be a financial breather for many.
Moreover, during this pause, no interest accrues on their loans, unlike in other IDR plans, Buchanan notes. “However, considering that time in the SAVE forbearance doesn’t contribute to loan forgiveness, it’s worth evaluating if switching plans makes sense,” Buchanan advises.
Should you opt to leave SAVE, the Trump administration highlights available options like Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR). The Department of Education has recently reopened applications for these, following updates to comply with the court’s ruling on SAVE.
However, Buchanan warns that automatic loan forgiveness after 20 or 25 years isn’t currently available in ICR or PAYE due to statutory challenges in court rulings.
### Weighing Alternatives
For borrowers under ICR or PAYE who switch to IBR, any prior payments count towards loan forgiveness, provided they comply with the plan constraints, Buchanan explains. Additionally, all IDR plans offer credit toward PSLF.
If you’re financially stable and not considering loan forgiveness, experts recommend the Standard Repayment Plan. While payments may be higher compared to IDR plan options, they are fixed, and borrowers are typically debt-free in a decade.
