Some student loan repayment plans have been suspended; here's what to know
Federal student loan borrowers are being shut out of the most affordable repayment plans as the Education Department grapples with a sweeping court order.
The department has stopped accepting and processing applications for all income-driven repayment plans after the U.S. Court of Appeals for the 8th Circuit last week expanded an injunction blocking President Joe Biden’s Saving on a Valuable Education program, commonly known as Save.
Biden’s program, which debuted in the fall of 2023, offered lower monthly payments and a faster path to loan cancellation than other income-driven plans. More than 8 million people enrolled, and more than 400,000 borrowers had their debts erased before two separate lawsuits brought Save to a halt last year. The lawsuits argued that Biden exceeded his authority by creating a program with far-reaching economic impact.
In late February, the court expanded its suspension of Save and sent the case back to the lower court. Although the ruling was ostensibly about Save, it has far-reaching implications for other repayment plans and has left borrowers scrambling for answers.
Here’s what borrowers need to know.
Which student loan repayment plans have been suspended?
All four income-driven repayment plans have been suspended: Income-Contingent Repayment, Pay as You Earn, Income-Based Repayment and Save.
Income-driven plans cap monthly bills at a percentage of a borrower’s earnings and extend repayment periods from the standard 10 years to as long as 25 years, with the promise of forgiving the balance at the end of that term.
The department also has taken down the online application for borrowers to consolidate their loans because it is coded with the IDR application. Borrowers can still submit a paper loan-consolidation application but will not have access to income-driven options.
Borrowers can enroll in the 10-year standard, graduated and extended repayment plans. Those plans do not consider a borrower’s earnings when determining the monthly payment, so they are typically more expensive options. People who cannot afford those plans could try to postpone their payments through deferment or forbearance but will still have interest accrue on the debt.
Why did the Education Department remove online applications for student loan repayment plans?
Because of the court order. Not only did the 8th Circuit uphold its suspension of the Save loan-forgiveness program, but the court also took aim at the 1993 statute underpinning Save and other income-driven plans, known as Income-Contingent Repayment.
The court said that loan forgiveness was not authorized in the 1993 law, which requires the education secretary to offer repayment plans tied to a borrower’s income and cap repayment at no more than 25 years.
The statute was used to create Income-Contingent Repayment (ICR) in 1994, Pay as You Earn (PAYE) in 2012 and Revised Pay as You Earn (Repaye) in 2015 - the predecessor of Save. All of the plans offered loan forgiveness. Each was more generous than the previous one, with newer plans offering shorter repayment periods and lower payments.
When the court issued the injunction in August, it enjoined the Education Department from further forgiveness for any borrower whose loans are governed “in whole or in part” by the 1993 statute. At the time, the department directed its loan servicers to temporarily pause the processing of income-driven repayment applications but reopened PAYE and ICR applications in December. It also continued processing some forgiveness applications by relying on provisions of Repaye.
The court objected to what it considered maneuvering around its August ruling and broadened the injunction in February to block the use of the Repaye provisions. As a result, the Trump administration shut down all four income-driven plans and removed the application from StudentAid.gov.
The department uses one application for all of the income-driven plans, which is why people can no longer apply for Income-Based Repayment even though it is not subject to the injunction.
How will the court order affect student loan borrowers?
The order and subsequent suspension of the income-driven repayment plans could make it more expensive for borrowers to repay their loans. The IDR plans are designed to keep payments affordable and help borrowers avoid default.
People who are already repaying their loans through an IDR plan and need to recertify their earnings to remain enrolled are barred from doing so for now, and the department has yet to say whether they will receive an extension. Without one, those borrowers will see their payments skyrocket as they are kicked back into the standard 10-year plan.
By pausing the Save plan, the court tabled aspects of the regulation designed to help borrowers in all IDR programs. That includes allowing some periods of deferment and forbearance to count toward IDR loan forgiveness and automatic enrollment in an IDR plan for delinquent borrowers.
What happens next?
The 8th Circuit has sent the lawsuit at the center of the application chaos back to the U.S. District Court for the Eastern District of Missouri, which must now rule on whether to end Save altogether.
In the meantime, the Education Department has directed its student loan servicers to stop accepting and processing income-driven repayment applications for 90 days. The pause could end early or be extended, depending on when the district court rules.
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