Federal student loan borrowers are unable to apply temporarily for an income-driven repayment plan, a decades-old safety net that links monthly loan payments to household income levels, as the US Department of Education considers a recent federal court decision.
The department closed its application for a repayment plan last week after expanding a temporary suspension of savings for a valuable education plan known as Save.
Its income-driven program, which is at the heart of the Biden administration's policy agenda with 8 million registered borrowers, has generated lower payments than its previous plans. Given its high costs, Save was targeted two separate legal challenges last spring by two Republican-led groups, claiming the Biden administration had stepped over its powers.
The save plans have since been in legal scope, with participants' payments being held back since last summer. However, applications for three other revenue-driven plans were also deleted last week. This is an old program that was not the subject of lawsuits. It effectively shut down the door to borrowers' more affordable plans in financial distress, and eliminated the key elements needed to at least temporarily participate in the public service loan forgiveness program.
“The department is considering repayment applications to comply with the 8th Circuit's decision,” a spokesman for the education division said Thursday, adding that it updated borrowers' information on dusttainid.gov, including pages on court cases related to preservation.
This is what we know now. The situation is fluid and will be updated when the situation changes.
What happened?
The U.S. Court of Appeals for the Eighth Circuit has upheld a temporary ban on some of the save plans issued by the U.S. District Court for the Eastern District of Missouri. The Court of Appeal sent the case back to the district court with instructions to extend the interim injunction to the entire rules of conservation (although other legal decisions had already temporarily suspended the program).
However, the Court of Appeals did not stop there. The judge also said that the Ministry of Education secretary lacks clear authority to grant loan exemptions in income-dependent repayment plans, despite being in place for more than 30 years. (Borrowers will correspond to monthly payments to a percentage of discretionary income that differs depending on the income-driven plan. However, after a set of 20-25 years, the remaining balance will be cancelled.)
“This is a fundamental departure from the way this law has been interpreted and managed for nearly 30 years,” says Michele Zampini, senior director of affordable prices at the University Access and Success, a research and advocacy group.
The education department has posted a banner on its website saying that the injunction prevented it from managing parts of Save and other revenue-driven plans. As a result, applications for consolidation of those plans and online loans were not available.
It is important to remember that the decision is not final and the litigation continues, says Abby Shafross, director of the National Center for Consumer Law's Student Loan Borrowers' Assistance Project. “However, this decision is very worrying for borrowers who rely on save plans to manage their payments and strive to be on debt-free,” she said.
What could happen next?
Scott Buchanan, executive director of the industry group Student Loan Service Alliance, said he expects that at least one application for the income-driven plan known as income-based repayments will be re-available “practically, soon.”
The reasons are complicated. That's because an income-based repayment plan was created as part of the July 2009 Act. This would explicitly allow the cancellation of the loan at the end of the repayment period, but was a regulation established by the department using authorities established under the Act of 1993. Initially, the state that filed the suit argued that the law of 1993 did not expressly allow cancellation of the loan, and the Court of Appeals sided with the interpretation.
However, the department relied on its authority to create three other revenue-driven programs, each gradually improving its previous plans. They were income-dependent repayments introduced in 1994. Payment for PAYE introduced in 2012. Repaye (Repaye) revised salary, which became available in 2015 and was replaced by Save.
Are income-driven loan applications currently being processed?
No, all applications have been temporarily suspended, according to Buchanan of the Alliance. He said he ordered the servicer to suspend processing revenue-driven and loan integration applications for three months, but expected to receive additional guidance in the coming weeks.
Monthly payments are still collected in other existing income-driven plans (income-based repayments, earned payments, and ongoing income repayments), but relief borrowers remain interest-free as long as the lawsuit continues.
Is the Public Service Loan forgiveness program still available?
Yes, the Public Service Loan forgiveness program is still open to government and non-profit employees, including public school teachers, librarians and public defenders. After 120 qualification payments have been made, the remaining balance will be wiped out.
However, there is currently one major obstacle. Most borrowers will need to register with an income-driven repayment plan to qualify for a loan cancellation and are currently not applicable to any of these plans.
However, if you are already on a qualifying repayment plan and are new to the public service program (for example, for a new job), you can still register. However, if you are on a save plan where payments have been suspended due to ongoing litigation, you will also be pending qualifying payments.
The public services program, which President George W. Bush signed into law in 2007, is currently not at risk. Student loan experts say they haven't dismantled a wide range of appetites from popular programs that require legislation to be passed in Congress.
What happens if I'm approaching making all my payments through a public service program but am stuck on my save plan?
Over two million people are enrolled in the Public Services Program, with hundreds of thousands approaching the finish line. The 21,700 borrowers have paid enough to qualify for cancellation, while 330,100 had qualifying payments between 97 and 119 as of December 31st.
Borrowers who are registered with a save plan and currently have adequately qualified payments have few good options now.
“We're pleased to announce that Betsy Mayotto, president of the Student Loan Advisors Institute, a group that provides free guidance to borrowers,” said: “Or, riding on the generosity of savings, once you've certified a 120-month eligible employment, you plan to use what's called a “buyback.” ”
With the so-called buyback option, borrowers will have to make payments for months when payments are generously suspended. Given the complex history of the program and the fact that many borrowers are in nightmare situations and are unable to receive forgiveness, keep documented and kept all copies and snapshots.
If I can't afford to pay (because I lost my job or any other reason), what are my options?
Beyond income-driven repayment plans, there are other options you can request through the loan servicer or the company that manages the payments. Although borrowers can temporarily suspend payments through postponements or tolerance, these programs have different eligibility requirements and consequences, primarily due to the way they handle their interests.
“Borrowers can be postponed due to financial difficulties or unemployed,” said Mayotto of the Institute for Student Loan Advisors. “Permanence generally applies when there are less specific financial difficulties.”
There are other repayment plans that allow you to lower your monthly obligations. Graduated repayments, which decrease and rise over time, reduce monthly payments by extending repayments and extending the loan term.
You can simply consolidate the loan and extend the repayment period to lower your monthly payments, but it has a drawback. You may have a higher interest rate on all your debts, and you will ultimately end up paying more overall.
And Shafros of the Law Centre said he will be cautious about consolidating the latest legal developments until it is clear whether it will block all income-driven repayment regulations introduced in 2023. These rules included provisions that protected borrowers from losing all payments that counted in the cancellation of income-driven loans. Before the rules, loan consolidation resumed its watch.
Can I get a penalty if I can't recertify my loan?
Each year, borrowers who register in income-driven repayment plans should face negative consequences, such as recertifying their income or being forced out of their repayment plans. However, these applications are not currently available either.
For now, that's not something you need to worry about, Buchanan said. Loan servicers are instructed to push back these deadlines by month, and will contact borrowers when it becomes clearer from the education department.
The Trump administration is focusing on cutting programs. Why not stop defending your save plan in court?
It seems logical. However, several student loan experts said there may be strategic reasons to keep the salvation alive for at least a while. Republicans may be able to make changes to the program through a massive budget package where Congress attempts to pass using a process known as settlement. This allows Republicans to acquire and cut their expected spending from SAVE to fund other initiatives.
“There's an interaction between this and the settlement. I think they're trying to save on books to pay billionaires' tax cuts, rather than ending the program through court.”
The education department did not immediately comment.
If I have a plan like preservation, it could be closed, will I be a grandfather?
It's hard to know exactly what's going to happen. When the Biden administration replaced its Repaye income-driven repayment plans with the Save program, Recaye subscribers were automatically transferred to the new plan. But in that case they received improved conditions.
Still, it can be even more difficult to take away anything. “It's certainly too early to say it,” said Shafross of the Law Centre. “Existing borrowers may have contractual rights to the material interests of these programs, whether or not they are currently registered with them.”
That may be why proposals to streamline income-driven programs are usually grandfathers to existing borrowers, she added, eliminating plans exclusively for new borrowers.
