WASHINGTON, DC – JULY 1: U.S. President Joe Biden speaks following a Supreme Court’s ruling at the … [+]
The Education Department released new guidance this week providing borrowers with key updates on student loan forgiveness, income-driven repayment plans, and Direct loan consolidation. The new information follows multiple court rulings that threatened to throw the entire federal student loan system into disarray.
Two federal courts blocked aspects of President Joe Biden’s SAVE program last week, a new income-driven repayment plan that lowers payments and provides loan forgiveness in 10 to 25 years, depending on the borrower’s specific circumstances. The injunctions halted plans to implement a more favorable repayment formula under SAVE, which would have reduced monthly payments for an estimated three million borrowers, and blocked student loan forgiveness.
Only a few days later, the 10th Circuit Court of Appeals halted one of those injunctions, allowing lower payments under SAVE to proceed, for now. The Education Department is in the process of appealing the second injunction blocking student loan forgiveness.
In the midst of these rapid developments, the administration released updates for borrowers. Here’s a breakdown.
Reduced Student Loan Payments Under SAVE Are A Go — For Now
“The courts have allowed Federal Student Aid to continue implementing the majority of the provisions of SAVE,” says the new Education Department guidance following the 10th Circuit’s ruling on Sunday staying the Kansas injunction. “Many of the cost-savings provisions of the SAVE Plan remain in effect.”
Borrowers who are already enrolled in SAVE and were set to have their monthly payments recalculated should be able to start paying either later this month or in August. Any associated administrative forbearance should end by next month, as well.
“If you are already on the SAVE Plan, no action is needed,” says the guidance.
Limited Information On Student Loan Forgiveness Updates
While lower monthly payments under SAVE can proceed following the 10th Circuit’s stay, the situation remains murkier on the status of student loan forgiveness under the program. The Missouri injunction blocks the Education Department from implementing loan forgiveness under SAVE, but the scope of that order remains unclear.
“If you can’t afford your loans, take a look at the information on loan forgiveness and other options on our Repaying Student Loans 101 page,” says the department’s guidance, the only reference to student loan forgiveness on the new website.
This is likely because the status of student loan forgiveness under SAVE remains very much in flux. Education Department officials believe that the Missouri injunction only pertains to early student loan forgiveness (sooner than 20 or 25 years), a unique feature of SAVE designed to benefit borrowers who took out relatively small amounts of debt. But the wording in the Missouri court order could be interpreted to block any student loan forgiveness under the plan.
The department is seeking clarification on the Missouri court order, and ultimately plans on appealing the injunction to the 8th Circuit Court of Appeals.
“We will update this page with new information as it becomes available,” says the department website.
Student Loan Consolidation And IDR Applications Should Go Back Up For Online Submissions
Following last week’s court orders, the Education Department took down online applications for IDR plans and Direct loan consolidation. Officials anticipated needing to revamp these online applications in order to comply with court orders, which could take weeks. However, following the 10th Circuit ruling, the department is working to restore online access to these applications.
“You can still enroll in the SAVE Plan or another IDR plan and/or request a Direct Consolidation Loan by submitting a PDF application to your servicer” while the online applications are unavailable, says the department in its guidance. That PDF application can then be sent to the borrower’s loan servicer by mail, fax, email, or online upload.
As of this writing, the online applications for IDR and Direct loan consolidation remain down. “The courts have allowed Federal Student Aid to continue implementing the majority of the provisions of SAVE,” says a notice on both application websites. “Borrowers can continue to enroll in SAVE, other IDR plans, and/or consolidate loans. We will keep you notified of any other updates.”
For PDF submissions, “Processing times may be longer than normal,” warns the department. “Please allow at least 30 days for your servicer to process your electronically uploaded application (longer for mail or fax) before contacting them for any updates. We appreciate your patience.”
Student Loan Forgiveness And Repayment Situation Remains Uncertain
While the Education Department’s issuance of the new guidance is indicative of attempts to keep borrowers informed, the situation remains very much in flux. The SAVE legal challenges are ongoing, and the existing injunctions could change as appeals continue. The status of student loan forgiveness under SAVE has not yet been confirmed. And the ultimate fate of SAVE remains uncertain, as parallel lawsuits continue in two separate courts, putting the program in potential jeopardy.
Borrowers can sign up for Education Department updates to stay informed of any new developments.
