Title: Exploring 3 IDR Plans and Their Role in Student Loan Forgiveness, Despite SAVE Plan's Bumps
After a considerable pause, the Education Department recently announced the resumption of application processing for several income-driven repayment plans, providing an avenue for borrowers to pursue long-term student loan forgiveness. The delay stemmed from a legal challenge to the SAVE plan, leading millions of borrowers to experience a standstill.
Income-driven repayment, or IDR, plans assist federal student loan borrowers by providing manageable payments based on their income and family size. These affordable payments are typically reassessed annually, adapting to the borrower's income changes. Under current law, borrowers enrolled in IDR plans may qualify for complete federal student loan forgiveness after 20 or 25 years, depending on the program. Enrollment in IDR plans is often a prerequisite for pursuing Public Service Loan Forgiveness (PSLF).
The IDR system, however, encountered disruption due to a legal challenge initiated by Republican-led states against the Biden administration last spring. This challenge targeted the SAVE plan, the most recent IDR option that provides lower payments, waives excess interest, and accelerates student loan forgiveness in specific cases. The 8th Circuit Court of Appeals issued an injunction in August, thereby blocking the Education Department from implementing the SAVE plan. The subsequent cascade of consequences impacted over 8 million borrowers, forcing them into forbearance. Although no payments were required during the forbearance, no forgiveness progress was made under IDR plans or PSLF.
Facing this predicament, IDR application processes could not be resumed for several weeks. Officials explained that the court order had necessitated updating the department's systems, delaying the resumption of processing. While applications eventually became available again, the processing remained halted. As per initial public guidance, borrowers affected by the SAVE plan forbearance were advised to apply for alternate IDR plans to continue progressing toward eventual loan forgiveness; however, no applications were actually being processed.
On a positive note, the Education Department recently announced that IDR processing has officially resumed for three plans: Income-Contingent Repayment, Pay As You Earn, and Income-Based Repayment. Borrowers can now resume applications to these plans, with servicers processing certain applications that had been paused due to the court order. The reopened ICR and PAYE plans offer borrowers more opportunities to regain control of their student loan repayment and work towards loan forgiveness.
It's crucial to note that SAVE plan applications remain unavailable due to the court's injunction. Additionally, the Education Department cannot process applications where borrowers select the 'lowest monthly payment' option, as there's a possibility it could be the SAVE Plan, making the application unprocessable in its current state.
The resumption of IDR application processing brings hope to many struggling borrowers, but it's vital to maintain realistic expectations. Delays, as well as potential complications, remain for IDR and PSLF borrowers pursuing student loan forgiveness. Serious processing delays are expected as servicers work through the substantial backlog of IDR applications submitted during the last five months. Some borrowers may be placed into a special processing forbearance lasting up to 60 days, which can count towards forgiveness for IDR and PSLF. If servicers fail to process the application within 60 days, borrowers will revert to a general forbearance that does not contribute to loan forgiveness.
Meanwhile, millions of borrowers await a ruling from the 8th Circuit regarding the SAVE plan. Although the legal challenge primarily targets the SAVE plan, the court is also considering potential strikes against loan forgiveness at the end of the 20- or 25-year term under the ICR and PAYE plans. Republican lawmakers have also considered repealing certain loan forgiveness pathways for all IDR plans, which adds to the overall uncertainty surrounding student loan forgiveness.
[1] Fortune[3] Forbes
- With the resumption of IDR application processing, borrowers can now explore long-term student loan forgiveness options, such as the Public Service Loan Forgiveness (PSLF) program, which requires enrollment in an IDR plan.
- As a result of the legal challenge to the SAVE plan, many borrowers were forced into forbearance, preventing any progress towards loan forgiveness under IDR plans or PSLF.
- President Biden's student loan forgiveness proposal includes provisions for forgiveness for certain borrowers, but the fate of other loan forgiveness programs, like the SAVE plan and IDR plans, remains uncertain due to ongoing legal challenges.
- A save plan could significantly reduce a borrower's monthly student loan payments and speed up their path to loan forgiveness, but current limitations prevent applications from being processed.
- Borrowers should consider enrolling in alternative IDR plans to continue progressing towards loan forgiveness while the Education Department works to make the SAVE plan available again.
