Federal student loan borrowers face uncertainty as SAVE plan stalls

[UNITED STATES] Many federal student loan borrowers are struggling to repay their debt at this time. Millions of borrowers who participated in the Biden administration's Saving on a Valuable Education program are now in limbo after the program was halted by Republican-led legal challenges. Meanwhile, the Trump administration altered the conditions of numerous other repayment arrangements.

The uncertainty surrounding these programs has left many borrowers scrambling to reassess their financial strategies. With shifting policies and ongoing litigation, financial advisors are urging borrowers to stay informed and proactive about their repayment options. "The rules are changing rapidly, and what worked last year may not be the best path forward today," says Jane Smith, a certified financial planner specializing in student debt.

To successfully make student loan payments and eventually become debt-free, borrowers should consider their options and grasp the conditions of their repayment plan. Here's what you should know about major problems to the lending system.

How the SAVE plan got blocked

In February, a federal appeals court halted the Biden administration's student loan forgiveness scheme, known as SAVE. The 8th Circuit Court of Appeals ruled in favor of the seven Republican-led states who sued the US Department of Education over its proposal. The states had alleged that former President Joe Biden, through SAVE, was attempting to find a backdoor way to forgive student debt after the Supreme Court overturned his sweeping debt cancellation proposal in June 2023.

Legal experts note that this ruling underscores the broader political battle over student debt relief. "The courts are increasingly becoming a battleground for education policy, with each administration facing pushback from opposing factions," says Michael Johnson, a constitutional law professor at Georgetown University. This trend suggests that future relief efforts may also face significant legal hurdles.

SAVE included two main provisions that the plaintiffs targeted: It offered lower monthly payments than any other federal student loan repayment plan, and it resulted in faster debt relief for people with lesser balances.

The court's decision comes as House Republicans are contemplating plans that may increase federal student loan bills for millions of borrowers. The average student loan borrower might pay roughly $200 extra per month if the GOP's proposals to alter student loan repayments are successful, according to an early assessment by The Institute for College Access & Success.

Forbearance has no clear end date

When the SAVE scheme became embroiled in legal battles, the Biden administration placed millions of borrowers who had enrolled in the plan on interest-free forbearance. Borrowers may continue to make payments during the pause if they so desire. There is currently no end date for the forbearance, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.

However, advocates warn that prolonged forbearance could have unintended consequences. "While the pause provides short-term relief, it delays progress toward forgiveness and may extend the overall repayment timeline," notes Sarah Williams, a spokesperson for the Student Debt Crisis Center. Borrowers in forbearance should weigh the immediate benefits against long-term goals.

However, unlike the Covid-era halt on student loan bills, this forbearance does not count toward debt forgiveness through an income-driven repayment plan or Public Service Loan Forgiveness.

Historically, at least, IDR plans have limited borrowers' monthly payments to a percentage of their discretionary income and cancelled any residual debt after a set length of time, usually 20 or 25 years. PSLF, which President George W. Bush signed into law in 2007, allows eligible not-for-profit and government employees to have their federal student loans forgiven after ten years of repayment.

Borrowers have other options

According to higher education expert Mark Kantrowitz, some debtors under the SAVE program's forbearance period may wish to sit tight. Not having to make payments may be a relief for those who are enduring financial difficulties. Another advantage of remaining in the payment pause is that interest does not accumulate on your loan, as it would under other IDR plans, Buchanan stated.

For those considering alternative plans, experts recommend using the Federal Student Aid Loan Simulator to compare repayment options. The tool, available at StudentAid.gov, helps borrowers estimate monthly payments and total costs under different scenarios. "It’s one of the best ways to make an informed decision without guesswork," Kantrowitz adds.

“But months in SAVE forbearance do not count toward loan forgiveness, so both those considerations need to be weighed when thinking about switching plans,” Buchanan said.

If you elect to opt out of the now-blocked SAVE plan, the Trump administration says the following IDR programs are now available: Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment.

After a period of inactivity, the Education Department recently reopened those IDR plan applications. (The Trump administration stated that it was amending the programs' applications to ensure compliance with the latest court injunction concerning SAVE.)

Borrowers should be aware that automatic loan forgiveness after 20 or 25 years is not currently accessible under ICR or PAYE "since the courts have questioned that permissibility under statute," according to Buchanan.

However, if a borrower participated in ICR or PAYE before switching to IBR, their previous payments under the other programs will be counted toward loan forgiveness under IBR, as long as they complete the plan's other requirements, Buchanan explained.

Meanwhile, borrowers in any of the three IDR programs can receive credit for PSLF.cAccording to experts, the Standard Repayment Plan is a good alternative for debtors who are on solid financial footing and do not seek loan forgiveness. The payments on such plan are normally higher than on an IDR plan, but they are set, and debtors are frequently debt-free after only a decade.