Student-loan borrowers on Biden's new repayment plan have 2 options to get credit toward debt cancellation while the program is blocked
Rattanakun Thonbun/EyeEm
- 8 million student-loan borrowers on the SAVE plan were placed on forbearance after the plan was blocked.
- During this forbearance, borrowers will not receive credit toward loan forgiveness.
- However, the Education Department highlighted two ways borrowers can still get relief credit.
The Education Department has updates on the next steps for student-loan borrowers enrolled in President Joe Biden's new repayment plan.
On July 18, the 8th Circuit Court of Appeals ruled that the SAVE income-driven repayment plan, intended to lower borrowers' monthly payments and give them a shorter timeline for debt cancellation, was blocked in its entirety as the legal process continues.
The ruling follows a roller coaster of court decisions regarding the SAVE plan. Earlier this year, two separate groups of GOP state attorneys general filed lawsuits to block SAVE, and two federal courts ruled that parts of the plan could not move forward. The 10th Circuit later ruled that key provisions of the plan could progress, but the 8th Circuit's ruling halted all elements of the plan.
As a result of the legal challenges, the Education Department placed 8 million borrowers enrolled in SAVE on forbearance, during which interest will not accrue, but borrowers will not receive credit toward loan forgiveness through Public Service Loan Forgiveness and income-driven repayment plans.
The department recently updated its guidance on what this forbearance period means for borrowers — including two avenues for borrowers to receive forgiveness credit despite the forbearance.
The first option is for borrowers on SAVE to switch to a new income-driven repayment plan, including PAYE, income-based repayment, or income-contingent repayment — all of which are not blocked in court. However, this option could have complications because online applications are not available at the time due to legal challenges, meaning borrowers would have to mail their forms to their servicer.
"Borrowers should expect a lengthy delay in processing of applications, especially for borrowers applying for SAVE/REPAYE," the guidance said. "We do not currently have an estimate of how long this will take."
Along with switching repayment plans to receive credit toward forgiveness, the Education Department highlighted another option for borrowers on PSLF to receive forgiveness credit: a "buy back."
Through a process the department made available last fall, borrowers can buy back months of PSLF credit for any time spent in forbearance or deferment if the borrower already has 120 months of qualifying employment. This option is only possible if borrowers meet these conditions:
- They have an outstanding balance on their loans
- Their employment has been approved as qualifying for PSLF
- And buying back the months in forbearance will complete their total of 120 qualifying payments.
If borrowers meet those conditions, they can submit a request here and find more information on the department's buy back guidance page.
Even with these options available, the department said it encourages borrowers to carefully consider their options given the uncertainty with the lawsuits and potential risks that accompany switching repayment plans.
"Different IDR plans may require higher monthly payments than the SAVE/REPAYE Plan does, and – in the case of some IDR plans – borrowers who later leave them may face interest capitalization," the department said. "However, payments made under these IDR plans will count toward forgiveness under IDR and PSLF."
A court has yet to issue a final ruling on whether SAVE can move forward. Business Insider previously spoke to some borrowers who are concerned about the fate of the plan — one borrower even said that while she voted for former President Donald Trump in 2016, she's considering voting for a Democrat in the upcoming election due to the conservative challenges to SAVE.
"I don't understand what the Republicans are thinking," she said. "Why are we not investing in our people? I mean, that's our biggest commodity, our people. Invest in their education."
Are you enrolled in the SAVE plan and concerned about your student-loan payments? Share your story with this reporter at asheffey@businessinsider.com.
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