On February 18, a U.S. appeals court delivered a blow to student loan borrowers expecting lighter monthly payments under the new Saving on a Valuable Education (SAVE) plan by blocking it. This unexpected turn means millions of people need to swiftly transition to a different repayment plan.
According to higher education expert Mark Kantrowitz, this switch won’t be easy. “Those participating in SAVE might find themselves paying significantly more—sometimes double or even triple—for their federal student loans,” Kantrowitz explained. The court’s decision not only stalls SAVE but also halts student loan forgiveness under other income-driven repayment plans. Here’s what borrowers should understand about the current situation.
### Why Was the SAVE Plan Halted?
The Biden administration unveiled the SAVE plan in the summer of 2023, promoting it as the most cost-effective student loan strategy ever. However, a group of Republican-led states quickly challenged it in court, arguing that it represented a backdoor effort by President Biden to wipe out student debt after the Supreme Court thwarted a wider debt cancellation initiative.
The legal scrutiny focused on two major aspects of SAVE: its lower monthly payment requirements compared to other plans and its provision for faster debt elimination for individuals with small balances. Income-driven repayment plans generally set loan payments according to income and family size, promising eventual debt forgiveness, although terms can differ. On February 18, the 8th U.S. Circuit Court of Appeals sided with the states challenging the U.S. Department of Education’s repayment plan.
### What Happens to My Forbearance?
While the SAVE-related legal battles unfolded, the Biden administration offered borrowers an interest-free break, lasting up to December. But now, Kantrowitz warns this period might end sooner under the current administration, potentially within weeks or months.
### Do I Need to Switch Plans?
Yes, you must enroll in an alternative repayment plan. Experts advise borrowers to begin exploring other options now. The court order not only affected SAVE but also halted student loan forgiveness under various income-driven plans, including the Revised Pay-As-You-Earn repayment plan (REPAYE). As it stands, the Income-Based Repayment Plan (IBR) is the only plan still leading to debt cancellation.
Betsy Mayotte, president of The Institute of Student Loan Advisors, reassures that those pursuing Public Service Loan Forgiveness (PSLF) can still target debt cancellation after 10 years, regardless of the IDR plan. “All IDR plans contribute to forgiveness,” Mayotte added, noting that switching plans won’t reset the countdown for forgiveness eligibility. There are several online calculators available to determine potential payments across different plans.
For those neither seeking forgiveness nor eligible for it, the Standard Repayment Plan is a viable option. This plan typically involves consistent payments over a decade.
### What If I Can’t Afford the New Payments?
If you’re struggling to meet the new payment demands, experts recommend checking whether you qualify for a deferment first, as this might prevent interest accumulation, unlike forbearance. If you’re without a job when payments restart, you can request an unemployment deferment from your loan servicer. Other financial difficulties might make you eligible for an economic hardship deferment.
Additionally, there are more specific deferments, such as those for graduate fellowship participants or military personnel. In cases where deferment isn’t available, borrowers can apply for a forbearance, allowing a pause of up to three years. However, bear in mind that interest will continue to accrue during this period, potentially resulting in a larger balance to manage later on.
