If you are currently paying back student loans under the SAVE plan (a new income-driven repayment plan), you probably recently received notice that your loans were being put into administrative forbearance. This is due to a pending court case regarding the future of the SAVE plan. 

In mid-July, the 8^th Circuit Court of Appeals granted an administrative stay, blocking the entirety of this new income-driven debt repayment (IDR) plan. Since mid-July, the Department of Education hasn’t been able to process monthly SAVE payments, process PSLF forgiveness for SAVE borrowers, reduce the monthly payments as planned (supposed to be reduced from 10% to 5% of discretionary income for undergraduate loans) or accept new SAVE applications. This has had an impact on millions of student loan borrowers. 

More recently on August 14^th, the 8^th Circuit Court of Appeals issued an injunction (which replaced the administrative stay). The injunction created some uncertainty for other IDR plans, so the Department of Education has deactivated online IDR and loan consolidation applications. Borrowers can submit paper IDR applications to their servicers, but they are not currently processing these applications. Currently, the case in on the U.S. Supreme Court’s emergency docket waiting for a response. In the meantime, borrowers enrolled in SAVE are stuck in a waiting game.

Currently, borrowers can’t switch to a different income-driven repayment plan. During the forbearance, no interest accrues, and no payments are due. While an interest-free forbearance sounds nice, as of now time spent in forbearance does not count for any forgiveness. This creates confusion and anxiety for our clients in PSLF working towards their 120 payments. 

At this time, we do not know how long the administrative forbearance will last. There is a buy-back provision for PSLF that could potentially allow people to regain credit for the months in forbearance, although there are specific requirements. Also, none of this impacts the planned income-driven repayment account adjustment set to be applied this fall to accounts. 

If you are enrolled in SAVE, we recommend holding tight and seeing what updates come in the next few weeks. If you are in PSLF, you can put your normal payment in savings, so it is available if the buy back option applies in the future. If you want to continue making payments, just know they will be applied to payments due after the forbearance ends. The Department of Education is maintaining this website if you want to stay updated on the case.

As always, we are here to help you navigate difficult financial decisions. Please email or call if you want to set up a Zoom videoconference meeting or talk by phone.

Mary McCraw, CFP®

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