The Biden administration’s new affordable repayment plan, known as SAVE, is facing significant legal challenges that are putting the program on hold. Republican-led states have sued the U.S. Department of Education, arguing that the agency overstepped its authority in implementing the plan. These legal battles could potentially delay the program for months or even longer, leaving roughly 8 million enrolled borrowers in limbo.
Despite the legal controversy surrounding it, the SAVE plan offers some of the most generous terms of any federal student loan repayment program to date. With lower monthly payments than any other existing plan and quicker debt erasure for those with small balances, the program was described by the Biden administration as “the most affordable student loan plan ever.” The Education Department had already forgiven $5.5 billion in student debt for 414,000 borrowers through the SAVE plan before the legal challenges arose.
For the millions of borrowers enrolled in SAVE, federal student loan payments are currently on pause as the Biden administration defends the program in court. Borrowers have been placed in an administrative forbearance with suspended interest accrual, similar to the Covid-era payment pause. However, the duration of this forbearance is uncertain, with some experts predicting it could last for months or even a year.
One of the key issues arising from the forbearance period is that months spent in this state will not count toward borrowers’ timeline for loan forgiveness. This means that those hoping for debt clearance through income-driven repayment plans or Public Service Loan Forgiveness are not receiving credit for the period in which they are not making payments. Borrowers working towards loan forgiveness are advised to explore other options, such as the buyback option for PSLF applicants who may have missed payments. Additionally, transitioning between repayment plans could take several months, causing further delays.
Despite the delays and challenges, SAVE enrollees are still benefiting from a $0 monthly payment during the forbearance period. While they may not be making progress towards debt forgiveness in the short term, the pause in payments does not result in any financial loss for borrowers. It is important for borrowers to stay informed about their options and to consider alternative repayment plans that may better suit their needs during this uncertain period.