KEY TAKEAWAYS
- Federal courts blocked parts of the Saving on a Valuable Education plan last Monday.
- The ruling stopped payment reductions that were supposed to go into effect July 1.
- The ruling has implications for those already enrolled in the program and those looking to make payments under the plan.
Student loan borrowers promised lower payments are in a holding pattern as courts decide the fate of the payments.
Parts of the Saving on a Valuable Education (SAVE) plan—which would have reduced payments for thousands of borrowers with federal student loans and forgiven debt of others—were blocked from going into effect by two different courts last Monday.
Many student loan borrowers expected their payments to be reduced on July 1. Under the plan, the required payment of 10% of a borrower’s discretionary income was supposed to be reduced to 5% on that date, but the legal ruling puts that in doubt.
The Department of Justice filed an appeal to the rulings Thursday night, but as the case works its way through the courts, student loan borrowers have been left in limbo.
About 8 million borrowers have signed up for the income-driven repayment plan after it was announced last year. The Biden Administration has said the plan saves borrowers $1,000 a year compared to its predecessors.
As the legal process plays out, here’s what borrowers who have signed up for the plan and those considering doing so need to know.
For Those Already Enrolled in SAVE
The Department of Education has put 3 million borrowers into forbearance during the court proceedings to comply with the ruling. Borrowers won’t accrue interest during the period they are in forbearance, according the DOE, which said it will be contacting these student loan holders directly in the next few days to outline these details.
For the 4.5 million borrowers in the program who have $0 monthly payments, they will continue to owe nothing and there will be no change in the way their payments are counted.
In all circumstances, those enrolled in the program will be insulated from their loan balances growing as a result of rising interest costs, according to the DOE.
For Those Already Forgiven
At least $613 million for 54,300 borrowers has been forgiven through the SAVE Plan, according to the Department of Education.
While the ruling did not specifically address those who already have been forgiven, the injunction specifically states that the government is prohibited from granting “any further loan forgiveness” until it comes to its decision.
For Those Wanting to Enroll in the SAVE Plan
Borrowers looking to enroll in the SAVE Plan can still apply via paper or PDF applications, however, the online application will be unavailable as the department looks to update it to reflect the most up-to-date information. This could take four to six weeks.
Borrowers will have their applications processed by servicers and those with payments more than $0 will be placed into forbearance during that process.
What Else Should Borrowers Know?
Megan Walter, senior policy analyst with the National Association of Student Financial Aid Administrators, said that student loan borrowers should ensure that any communications come directly from the Department of Education.
“Be extra diligent about scams right now,” Walter said. “When there’s all this confusion and uncertainty about what’s going on with loans is when the telemarketers, the fraudsters, really start to strike, especially via telephone.”
