Student Loan Borrowers Blocked From Affordable Repayment Plans

New York Times

28-02-2025

Federal student loan borrowers are temporarily unable to apply to income-driven repayment plans, a decades-old safety net which ties their monthly loan payment size to household income levels, as the U.S. Education Department reviews a recent federal court ruling.
The department closed applications to the repayment plans last week after the U.S. Court of Appeals for the Eighth Circuit upheld and expanded a temporary suspension of the Saving on a Valuable Education plan, known as SAVE.
That income-driven program, a centerpiece of the Biden administration's policy agenda with eight million enrolled borrowers, generated lower payments than previous plans. Given its high cost, SAVE became the target of two separate legal challenges last spring by two groups of Republican-led states, which argued that the Biden administration had overstepped its authority.
The SAVE plan has been in legal limbo ever since, and participants' payments have been on hold since last summer. But last week, applications to the three other income-driven plans were also taken down — older programs that hadn't been subject to any litigation. That effectively shut the door to more affordable plans for borrowers in financial distress, and eliminated a crucial component needed to participate in the Public Service Loan Forgiveness program — at least temporarily.
'The department is reviewing repayment applications to conform with the 8th Circuit's ruling,' a spokesman for the Education Department said Thursday, adding that it updated information for borrowers on StudentAid.gov, including on a page about court actions related to SAVE.
Here's what we know now. The situation is fluid, so we'll update as circumstances change.
What just happened?
The U.S. Court of Appeals for the Eighth Circuit upheld a temporary ban on a portion of the SAVE plan issued by the U.S. District Court for the Eastern District of Missouri. The appeals court sent the case back to the district court with instructions to expand the preliminary injunction to the entire SAVE rule (though other legal rulings had already temporarily suspended the program).
But the appellate court didn't stop there: The judges also said that the Education secretary lacks the explicit authority to grant loan forgiveness in any Income-Contingent Repayment plans, even though it's been done for more than three decades. (Borrowers make monthly payments equal to a percentage of their discretionary income, which varies across income-driven plans. But after a set number of years, usually 20 to 25, any remaining balance is canceled.)
'This is a radical departure from how this statute has been interpreted and administered for nearly 30 years,' said Michele Zampini, senior director of college affordability at the Institute for College Access and Success, a research and advocacy group.
The Education Department posted a banner on its website that said the injunction prevents it from administering SAVE and parts of other income-driven plans — and, as a result, applications for those plans and online loan consolidations were unavailable.
It is important to remember that the decision is not final and that litigation is continuing, said Abby Shafroth, director of the National Consumer Law Center's Student Loan Borrower Assistance Project. 'But the decision is very worrying for borrowers who depend on the SAVE plan to manage their payments and work toward being debt free,' she said.
What's likely to happen next?
Scott Buchanan, the executive director of the Student Loan Servicing Alliance, an industry group, said he would expect that applications for at least one of the income-driven plans, known as income-based repayment, will become available again 'as soon as practical.'
The reasons are complicated: That's because the income-based repayment plan was created as part of a July 2009 law, which explicitly permits loan cancellation at the end of the repayment term, whereas SAVE was a regulation established by the department using authority established under a 1993 law. The states that initially brought the lawsuit argued that loan cancellation wasn't explicitly permitted under the 1993 law, and the appellate court sided with that interpretation.
But the department has relied on that authority to create three other income-driven programs, all before SAVE, each of which incrementally improved on the plans before them. Those included Income-Contingent Repayment, introduced in 1994; Pay As You Earn (PAYE), introduced in 2012; and Revised Pay As You Earn (REPAYE), which became available in 2015 and was replaced by SAVE.
Are income-driven loan applications being processed now?
No, all applications have been temporarily halted, according to Mr. Buchanan, of the alliance. He said the servicers have received instructions to stop processing the income-driven and loan consolidation applications for three months, but he expected they will receive additional guidance in the coming weeks.
Monthly payments are still being collected on the other existing income-driven plans (Income-Based repayment, Pay As You Earn and Income-Contingent Repayment) while SAVE borrowers remain in an interest-free forbearance while the litigation continues.
Is the Public Service Loan Forgiveness program still available?
Yes, the Public Service Loan Forgiveness program is still open to government and nonprofit employees such as public schoolteachers, librarians and public defenders. After making 120 qualifying payments, any remaining balance is wiped out.
But there is currently one major obstruction: Most borrowers need to be enrolled in an income-driven repayment plan to be eligible for loan cancellation, and it's not possible to apply to any of those plans right now.
If you're already in a qualifying repayment plan, however, and you become newly eligible for the public service program (because of a new job, for example), you can still enroll. But if you're in the SAVE plan, where payments have been halted because of the ongoing litigation, your qualifying payments have also been put on hold — and you can't make any progress toward forgiveness.
The public service program, which President George W. Bush signed into law in 2007, is not at risk right now, and student loan experts say there isn't a broad appetite dismantle the popular program, which would require Congress to pass a bill.
What if I'm close to making all of my payments in the public service program, but I am stuck in the SAVE plan?
There are more than two million people enrolled in the public service program and hundreds of thousands of them are approaching the finish line: 21,700 borrowers have made enough payments to qualify for cancellation, while 330,100 had made 97 to 119 qualifying payments as of Dec. 31, according to data from the Education Department's Federal Student Aid office.
Borrowers who are enrolled in the SAVE plan and have nearly enough qualifying payments currently have few good options.
'Borrowers stuck in SAVE can either wait for the I.D.R. applications to open back up and switch to another I.D.R. plan,' said Betsy Mayotte, president of the Institute of Student Loan Advisors, a group that provides free guidance to borrowers. 'Or, ride out the SAVE forbearance and plan on using what's called 'buy back' to get credit for those months once they have certified 120 months of eligible employment.'
Using the so-called buy back option, borrowers would need to make payments for the months their payments were paused in forbearance. Given the history of the complex program and the fact that many borrowers had found themselves in nightmarish situations and unable to receive forgiveness, be sure to document and keep copies or snapshots of everything — your work history with your eligible employer, all qualifying payments, recertification applications, all of it.
What are my options if I can't afford payments (because I lost my job or some other reason)?
There are other options besides income-driven repayment plans that can generally be requested through your loan servicer or the company that manages your payments. Borrowers can temporarily pause payments through deferments or forbearance, but those programs have different eligibility requirements and consequences, largely because of the way interest is treated.
'Borrowers can receive deferments for things such as economic hardship or being unemployed,' said Ms. Mayotte of the Institute of Student Loan Advisors. 'Forbearances are generally applied in cases of less specific financial hardship.'
There are other repayment plans that can lower your monthly obligation: graduated repayment, where payments start lower and rise over time, and extended repayment, which lowers the monthly payment by lengthening the loan term.
Simply consolidating your loans can also lower your monthly payments by extending the repayment period, but there are drawbacks. You may have a higher interest rate on all of your debt, and you'll end up paying more overall.
And Ms. Shafroth, of the law center, said she would be wary of consolidating until it's clear whether the latest legal development will block all income-driven repayment regulations introduced in 2023. Those rules included a provision that protected borrowers from losing all of their payments that counted toward cancellation of income-driven loans. Before the rule, loan consolidation restarted that clock.
Will I be penalized if I cannot recertify my loans?
Each year, borrowers enrolled in income-driven repayment plans must recertify their income or face negative consequences, including being kicked out of the repayment plan. But those applications are also not available right now.
For now, it's not something you need to worry about, Mr. Buchanan said. The loan servicers have been instructed to push back those deadlines on a month-by-month basis, and will be in touch with borrowers when they receive more clarity from the Education Department.
The Trump administration is focused on cutting programs. Won't it stop defending the SAVE plan in court?
It would seem logical. But several student loan experts said the administration may have strategic reasons to keep SAVE alive, at least for a while. Republicans may be able to make changes to the program through the enormous budget package that Congress will attempt to pass using a process known as reconciliation. That may enable Republicans to capture and cut the projected spending from SAVE to fund other initiatives.
'There is interplay between this and reconciliation, where I think they are trying to legislate SAVE off the books to pay for tax cuts for billionaires, instead of ending the program through the courts,' said Persis Yu, deputy executive director of the Student Borrower Protection Center, an advocacy group.
The Education Department did not immediately comment.
If I'm in a plan like SAVE that may close, will I be grandfathered in?
It's hard to know exactly what will happen. When the Biden administration replaced the former REPAYE income-driven repayment plan with the SAVE program, REPAYE enrollees were automatically transferred into the new plan. But in that case, they were receiving improved terms.
Still, it may be more difficult to take something away. 'It's too soon to say for sure,' said Ms. Shafroth, of the law center. 'Existing borrowers may have contractual rights to the key benefits in these programs, regardless of whether they're currently enrolled in them.'
That may be why proposals to streamline income-driven programs have typically grandfathered in existing borrowers, she added, and only eliminated the plans for new borrowers.