SAVE plan forbearance could last another 6 months, pausing student loan forgiveness for millions

The Biden administration said that under new guidance released by the Department of Education, millions of borrowers stuck in student loan forgiveness and repayment purgatory due to legal challenges related to the SAVE plan could have a long road ahead before any resolution.

The SAVE plan, the latest of several income-driven repayment plans, lowered monthly payments for eight million borrowers when the program went into effect last fall. The program offers several other benefits, including a subsidy that prevents loan balances from growing too much due to uncontrolled interest accrual, and possible student loan forgiveness in as little as 10 years for borrowers who have incurred small amounts of debt.

But the SAVE plan is currently in legal limbo. Last spring, a group of Republican-led states filed lawsuits — after more than eight million borrowers signed up — to stop the program. And so far, they succeeded. In August, a federal appeals court issued an injunction blocking the program, forcing every borrower who enrolled in a SAVE plan or applied for forbearance. Borrowers will not have to repay their student loans during the forbearance period and no interest will be charged, but the time will not count toward student loan forgiveness. This effectively stops the clock for borrowers seeking debt relief under both IDR plans Loan forgiveness for public purposesor PSLF.

Last week, the Department of Education released new guidance clarifying expectations for the duration of a SAVE plan and offering guidance on what borrowers may want to consider if they want to continue to apply for student loan forgiveness.

SAVE plan forbearance may last another 6 months or longer

The SAVE Plan forbearance has been in effect for more than two months, halting progress toward IDR and PSLF student loan forgiveness for more than eight million borrowers. However, so far the Department of Education has not provided any specific information on how long forbearance can be expected.

This changed last week when the Ministry of Education issued a regulation updated guidelines notifying borrowers that SAVE plan forbearance may last at least another six months – and possibly even longer.

“Borrowers in SAVE and anyone who has filed a SAVE application should expect an interest-free blanket suspension of repayments for the next six months or longer, pending further developments from the 8th Circuit Court of Appeals,” the department said Thursday.

But perhaps understanding would make it possible last longer. Although the ruling 8^vol The circuit could be issued any time in the next month or two after a critical hearing held last week (coincidentally, the same day the Department of Education issued updated guidance). Any such ruling will almost certainly be appealed to the United States Supreme Court. The country’s highest court does not issue immediate rulings and will likely have to schedule oral arguments. The final decision will be issued in summer 2025 at the earliest.

Student loan forgiveness remains locked under the SAVE plan and other IDR plans

The Department for Education also confirmed in its updated guidance that Student loan forgiveness remains blocked for now under the SAVE plan and other IDR plans that were created under the same legal authority. This includes the PAYE plan and ICR, which were withdrawn last summer with the introduction of SAVE. 8^vol The Circuit’s sweeping order, which the Biden administration has described in legal documents as “far-reaching,” now directly impacts borrowers enrolled in other IDR plans.

Borrowers using PAYE and ICR can continue to make payments and make progress toward student loan forgiveness under IDR terms of 20 to 25 years, as well as PSLF. However, borrowers enrolled in SAVE, PAYE or ICR who meet the IDR loan forgiveness threshold will not receive relief while the dispute is pending. They would instead be put into forbearance, according to the Department of Education. 8^vol The Circuit appears poised to rule that student loan forgiveness under these other plans should be repealed despite more than 30 years of regulations, loan note regulations, and bipartisan guidance that borrowers will receive discharge at the end of 20 or 25 years. one-year repayment period.

Student loan forgiveness under the IBR plan remains available, however, because Congress established IBR through a separate legal authority that is not currently being challenged in court.

New Potential Workarounds for IDR Student Loan Forgiveness

In its updated guidance, the department suggested that new workarounds may emerge that will allow borrowers to continue seeking IDR student forgiveness despite the ongoing order and forbearance under the SAVE plan.

First, the department indicated that officials will begin a regulatory process in the fall to restore access to PAYE and ICR plans. These programs were largely phased out with the establishment of the SAVE plan (except for borrowers who were already enrolled in these plans and Consolidated Parent PLUS who continue to have access to ICR). Eligible borrowers may soon be able to switch to these plans, although no timeline has been provided.

Additionally, the new guidance indicates that the Department of Education is in the process of developing an “IDR Buyback” program. Although the new guidelines include few details, this option is likely to be modeled on: PSLF buyout programwhich allows borrowers to “buy out” time spent in an ineligible forbearance period (such as forbearance under a SAVE plan) so that the period can be counted toward student loan forgiveness. Payments will likely be based on what the borrower’s IDR payments would have been had they been officially paying off the IDR plan at the time. However, the IDR Buyback option is not expected to be available until late 2025. The Department expects to provide more information on this yet-to-be-developed option in the coming weeks.

IBR remains available to pursue student loan forgiveness

Meanwhile, the IBR plan – which is not blocked by the 8th^vol Circuit order – remains in effect. The Department of Education has confirmed in its updated guidance that the processing of IDRs, including applications for change to an IBR plan, will resume soon.

Switching to an IBR plan would allow borrowers to resume progress toward student loan forgiveness over a 20- or 25-year IDR term, and payments made under other IDR plans would count toward IBR loan forgiveness. Additionally, IBR is also an eligible repayment plan for PSLF.

However, borrowers should be aware of this some potential disadvantages. Payments under an IBR may be higher than under a SAVE plan, especially if the borrower’s income has increased since his or her last income recertification. Additionally, IBR does not provide the interest benefits associated with a SAVE plan, so some borrowers may experience balance growth while using IBR or interest capitalization if they later change plans.