Today, let’s walk through the analysis that goes into making this decision and explore the reasons why a borrower might choose to stay on SAVE or switch to another plan.

The SAVE Forbearance Problem

With Donald Trump winning the election, the SAVE repayment plan as we know it is likely coming to an end. The plan is struggling in the court system, and it is unlikely that the new administration will work to keep it in place.

With the SAVE litigation forbearance likely ending in the coming months, many borrowers want to know the next steps. The problem is that we don’t know what options will be available moving forward. IBR has a high likelihood of being available indefinitely, while ICR and PAYE could be returning before Biden leaves office. REPAYE might also reappear.

The biggest downside with the SAVE forbearance is that the time spent in this payment pause does not count toward student loan forgiveness. Initially, I hoped this rule might change retroactively, but the new administration is unlikely to take that approach. For many borrowers, switching to a plan that counts toward forgiveness could make the most sense.

What protections do borrowers have in place? Learn how Trump’s election could impact various federal repayment plans and forgiveness programs.

The Case for Staying on the SAVE Forbearance

For some borrowers, staying on SAVE might still make sense despite the uncertainty. Here’s why:

• 0% Interest: While the forbearance is active, borrowers enjoy a 0% interest rate on their loans. This is a considerable savings and it means the forbearance is truly a student loan pause.
• Unknown Resolution and Timing: We don’t know when the SAVE forbearance will end or what repayment plans will be available at that time. Waiting provides time to make a decision when more information is available.
• Payment Break: The payment break allows borrowers to save up for whatever comes next or build up an emergency fund.
• PSLF Buyback Potential: The buyback program could still benefit borrowers working toward Public Service Loan Forgiveness (PSLF).

The election is a big change and there is certainly temptation to “take action” in order to protect yourself moving forward. Being proactive might feel good, but in many cases, being patient might be the prudent approach.

Switching to IBR Now

One of the most stable options available is the Income-Based Repayment (IBR) plan. Here are some key considerations:

• Stability: IBR is statutory law and is expected to remain a reliable repayment option moving forward. This makes it a good choice for borrowers looking for long-term stability.
• Forgiveness Progress: By switching to IBR, borrowers can begin making qualifying payments toward loan forgiveness immediately.
• Tax-Free Forgiveness Window: Enrolling in IBR now may allow borrowers to receive forgiveness before taxes on forgiven balances return in 2026, potentially saving thousands of dollars in tax liabilities.

Drawbacks of Switching to IBR

Switching to IBR has some drawbacks that borrowers should be aware of:

• Higher Costs: For many borrowers, IBR can be more expensive than SAVE, particularly for those who don’t qualify for the more favorable terms of IBR for New Borrowers (2014 version). The older version of IBR requires borrowers to pay 15% of their discretionary income, compared to SAVE’s 10%. This difference alone can lead to significantly larger monthly payments. 
• Discretionary Income Definition Change: IBR defines discretionary income as the amount above 150% of the federal poverty level, whereas SAVE uses a more generous 225% of the federal poverty level.
• Eligibility Limitations: IBR comes with an income cap, meaning not everyone will qualify for this plan. Borrowers whose income exceeds the cap may be ineligible. These borrowers could be better off waiting to see what happens with SAVE/REPAYE.
• Income Recertification: Many borrowers have not recertified their income since before the pandemic. A new recertification could result in a significant payment increase if income has risen during that time.

Waiting for ICR or PAYE to Return

For borrowers not eligible for IBR but eligible for PAYE, waiting might be a smart move, as PAYE could soon become available for new enrollments again.

Income-Contingent Repayment (ICR) is also worth considering. It’s a good option for borrowers with higher incomes and smaller balances who are close to reaching forgiveness. ICR doesn’t get much attention, but it can work well in specific scenarios.

What we know for now is that the Biden administration plans to bring both of these plans back. Additionally, with SAVE unlikely to survive, bringing back both of these plans seems logical, and potentially legally required.

Holding Out Hope for REPAYE

I’m not ruling out the possibility that REPAYE could return.

There is also the potential for a REPAYE/SAVE hybrid plan, which might incorporate some changes from SAVE—such as the 10% discretionary income payments—but eliminate the earlier forgiveness and 5% discretionary income payments that are currently being litigated. This could end up being a compromise solution in the near future.

A REPAYE/SAVE hybrid is probably the optmistic outcome for borrowers, but I think it is a somewhat realistic outcome as well.

Final Thoughts: Two Things to Keep in Mind

If you decide to switch out of the SAVE forbearance, remember that processing times for IDR enrollments are still quite slow. Moving to IBR now and then switching to another plan in a few months might not save much time overall.

Above all, it’s important not to assume the worst. Borrowers’ fears about what could happen to their repayment options are justified, but assuming that all forgiveness and IDR plans will be eliminated is premature. The ideal strategy is to stay flexible and be ready to adjust as more information becomes available.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Should I Switch Out of the SAVE Forbearance? appeared first on The Student Loan Sherpa.

The purpose of this article is to help borrowers identify and avoid student loan scams. Much of the advice contained below comes directly from the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CFPB). I’ve also included details on some of the types of scams I’ve seen over the years.

Calling Out Scammers by Name: I’d love to make a list of known scammers as a resource for borrowers. Sadly, a scary experience dealing with a scam company makes going that route especially difficult.

What Does a Student Loan Scam Look Like?

The most effective scams that I have seen create a sense of urgency with borrowers. Act now before the opportunity disappears.

For many responsible borrowers, a limited offer is worth investigating. If there is even a chance that the offer is legitimate, the potential savings would be enormous.

While the rules for student loans do change, it never happens quickly, and it never costs any money to benefit. All federal student loan programs are free to enroll. Additionally, paying for expert help just to fill out paperwork is almost always a mistake.

This graphic from the FTC best summarizes some of the telltale signs of a scam:

Lower Student Loan Interest Rates: Real or Scam?

The good guys and the bad guys both promise lower interest rates.

What is Legitimate – There are many student loan refinance companies that can actually lower your interest rates. Most of them work with both federal and private student loans.

The legitimate companies make money by offering lower interest rates to borrowers who are highly likely to pay back their student loans. These lenders pay off your existing debt with your old lenders. Then, you pay back the new company at, what is hopefully, a lower interest rate. The aggressive advertising, lower interest rates, and sign-up bonuses often trigger the “too good to be true” alarm for many consumers.

The best way to know you are dealing with a legitimate company is that good credit will be required. They will need your credit report to determine if you are a borrower who pays back your debt and can afford the loan.

This service is normally advertised as student loan refinancing, and there are many lenders in the refinance business. I’ve ranked and reviewed the nationwide companies offering student loan refinancing. Note that although some lenders received negative reviews, they are still legitimate companies. They just provide rates and terms I think could be better.

When a Lower Rate is a Scam – One of the biggest red flags to be aware of is when a company promises you lower interest rates and student loan forgiveness. You can get lower rates by refinancing your federal loans. However, those loans become private loans and lose eligibility for federal forgiveness programs. Alternatively, you can pursue federal forgiveness, but the government won’t be cutting your interest rate.

If everybody gets a lower interest rate, it is also probably a scam. Refinance companies only make money if they are smart in choosing their customers. If they pay off the loans for people who won’t pay back their debt, they will lose money.

Obama, Trump, or Biden Student Loan Forgiveness

Scammers love to advertise forgiveness programs associated with the current president. They try to benefit from the harsh political climate by appealing to a particular point of view.

However, it isn’t fair to say that all federal forgiveness programs are a scam. It has just been my experience that if somebody attaches the President’s name to the program, it is more likely to be fraudulent in some way.

What is Legitimate – Many student loan forgiveness programs exist for federal student loans. The most common are the forgiveness programs offered through income-driven repayment plans and Public Service Loan Forgiveness. There are also programs for borrowers in certain occupations, such as teachers and military personnel.

You can enroll in the legitimate programs directly through your federal student loan servicer. No special expertise is required. Although, researching and understanding the programs is very helpful for preventing errors. Furthermore, there is no cost to signing up for any of the student loan forgiveness programs. Federal law created these programs and are often a term in your student loan contract with the government.

Legitimate student loan forgiveness does not immediately wipe away all of your debt. It takes years to reach. It is a good idea for some borrowers, while others are better off aggressively paying off their debt.

Student Loan Forgiveness Scams – One of the biggest giveaways to a student loan forgiveness scam is a high-pressure sales environment. If somebody is aggressively trying to push you into a program that will erase your debt, it should be a red flag. Another huge red flag is any fees associated with the program. Again, student loan forgiveness is federal law, and signing up costs nothing. There should be no enrollment fees or monthly costs.

Another common red flag is when a company advertises a special relationship with the Department of Education. Such a relationship doesn’t exist. Student loan programs are open to all federal borrowers. No outside company can change your eligibility.

Finally, if you are working with a company that requires your FSA PIN, now known as the FSA ID, you are likely getting scammed. The Department of Education makes it clear that the borrower is the only person who should have access to this number.

You can achieve enrollment in any student loan forgiveness program through your federal student loan servicer. Any third party that tries to enroll on your behalf likely has bad intentions. At best, they are charging you money to fill out forms that you could submit on your own. At worst, they are flat-out stealing your money or your identity.

Student Loan Consolidation Scams

Student loans are consolidated when multiple existing loans are combined into one new larger loan. There are two types of consolidation. One is federal student loan consolidation, and the other is private loan consolidation. For many borrowers, student loan consolidation is a helpful or even necessary step. Unfortunately, there are also scammers advertising student loan consolidation services.

Legitimate Student Loan Consolidation – Many borrowers elect to consolidate their federal loans to gain eligibility for certain programs. For example, FFEL loans are not eligible for public service loan forgiveness, but they can be included in a federal direct consolidation loan and gain public service forgiveness eligibility. You can consolidate your federal student loans only directly through the federal government. This process can only take place using the Department of Education’s consolidation site.

Student Loan Consolidation Scams – If you are paying for this service, it is almost definitely a scam. Whether you are consolidating your federal loans for program eligibility or consolidating on the private market for a lower interest rate, the cost to you should be $0. Another red flag is if the company you are working for asks for your FSA ID or FSA PIN.

$0 Per Month Student Loan Payments

Like many other scams, the $0 per month payment scams start with a legitimate federal program and use it to take advantage of borrowers.

What is Legitimate – Federal student loans do have income-driven repayment plans. If you don’t have any income or your income is below a certain level, your monthly payment could actually be $0. It is also possible that the government could eventually forgive your loan. This is something you can do directly with your student loan servicer and requires no expertise or special knowledge.

When $0 Payments are a Scam – If you see advertising for income-driven payments, the odds are pretty good that it isn’t legitimate. Loan servicers and the federal government don’t spend money advertising these options. They have no incentive to promote these programs. They simply make it available for the borrowers who need help. If you are seeing aggressive advertising from a company offering $0 payments, it is a huge red flag.

Private lenders don’t have income-driven repayment plans. If you see an advertisement for this, somebody is probably trying to sell you something, and you probably don’t want to buy it.

Personalized Student Loan Consultations 

There are numerous self-described student loan specialists offering personalized advice for individual student loan circumstances. This is a gray area in the world of student debt.

For the sake of transparancy, I should disclose that I am someone who falls into this category of self-described specialists offering individual guidance.

As such it probably isn’t fair for me to say who or what is legitimate and what might be a scam. What I will say is that when shopping for a service like this be wary of ongoing fees and lofty promises.

Paying someone for an hour of their time and insight is reasonable. There isn’t any reason for monthly charges, or charges based upon the amount of debt forgiven. Likewise, nobody can promise loan forgiveness or a specific outcome. Anyone engaging in either practice should be viewed with some skepticism.

Red Flags to Avoid

If the specific details covered so far don’t apply directly to your situation, the Consumer Financial Protection Bureau has some excellent general guidelines for identifying and avoiding student loan scams.

According to the CFPB, the following are all signs of a scam:

Pressure to pay high up-front fees. It can be a sign of a scam when a debt relief company requires you to pay a fee up-front or tries to make you sign a contract on the spot. These companies may even make you give your credit card number online or over the phone before explaining how they’ll help you. Avoid companies that require payment before they actually do anything, especially if they try to get your credit card number or bank account information.

Promises of immediate loan forgiveness or debt cancellation. Debt relief companies cannot negotiate with your creditors for a “special deal.” Federal law sets payment levels under income-driven payment plans. For most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.

Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and make decisions on your behalf. In some cases, they may even step in and ask you to pay them directly, promising to pay your servicer each month when your bill comes due.

Requests for your Federal Student Aid ID. Be cautious about companies that ask for your Federal Student Aid ID. Your FSA ID — the unique ID issued by the U.S. Department of Education to allow access to information about your federal student loans — is the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company the power to perform actions on your student loan on your behalf. Honest companies will work with you to develop a plan. Further, they will never use your FSA ID to access your student loan information.

A Couple Final Tips from the Sherpa

I once received a call from a student loan company that was going to fix my student loans. The glaring red flag was the fact that they didn’t even know my name. If you call me to offer a service and don’t even know my name, I know you are a spammer. Enough Americans have student loan debt that some scammers just call every phone number they can.

However, I’ve received mail from companies that had detailed information about my student debt situation. After some investigation, I determined that they were scams attempting to charge me for free federal student loan programs. The lesson: companies that have your loan information on file may not be legit. To this day, I have no idea how the scammers knew about my debt balance.

Finally, calls, texts, emails, letters, and ads about brand new laws and special programs from Congress are almost always scams. Any new student loan program from the government gets a ton of attention. These programs are easy to verify via a quick Google search. Don’t ever assume that some company has special access or information.

The post Student Loan Forgiveness Scams vs. Legit Programs – How to Tell the Difference appeared first on The Student Loan Sherpa.

Like the page that tracks the SAVE litigation, this page will remain updated with the latest news, updates, and developments on Forgiveness 2.0.

Forgiveness 2.0 Basics

Unlike previous efforts that aimed to forgive some debt for nearly all federal borrowers, the Department of Education is now focusing on those most in need and arguably most deserving of federal assistance. This targeted approach includes four key groups:

• Borrowers with balances larger than their original loans.
• Borrowers who have been in repayment for decades.
• Borrowers who are eligible for forgiveness but haven’t applied.
• Borrowers enrolled in low-financial-value programs.

By concentrating on borrowers who are struggling and unlikely to repay their debt in full, the Department of Education strengthens its position should the forgiveness plan face legal challenges.

Timeline and Current Status

• August 1, 2024: The Department of Education emails borrowers, giving them until August 30th to opt out of any potential forgiveness.
• September 3, 2024: Seven states sue to block Forgiveness 2.0.
• September 5, 2024: The Southern District of Georgia grants the plaintiffs’ request to temporarily block Forgiveness 2.0 from being implemented while the case is pending.
• October 2, 2024: The case gets moved from Georgia to Missouri potentially opening a small window for the Department of Education to move forward with forgiveness.
• October 3, 2024: A Missouri judge blocks the Department of Education from moving forward with forgiveness.

The case has no entered into another likely long holding pattern for borrowers.

The dismissal of Gorgia as a plaintiff and the move to Missouri was a small win for the Biden adminstration, but there are much bigger battles to still be fought.

The full litigation process could take years, as a trial is expected, followed by appeals that could eventually reach the Supreme Court.

The Legal Theory Behind Forgiveness 2.0

Previously, the Department of Education attempted to forgive up to $20,000 per federal student loan borrower by relying on the HEROES Act. This act, passed shortly after 9/11, was designed to help the federal government respond to disasters. The Department argued that the COVID-19 crisis justified student loan relief, but the Supreme Court disagreed.

One significant advantage of using the HEROES Act was the ability to act swiftly, bypassing the lengthy rulemaking process that other approaches would have required.

This time, the Department took a more conventional approach under the Higher Education Act (HEA). The rulemaking process began in 2023 and was still not completed at the time the lawsuit was filed.

Last fall, the Department released an issue paper exploring the legislative authority for forgiveness under the HEA. This approach, while slower, was intended to provide a more robust legal foundation for the forgiveness effort.

The Influence of the Upcoming Election

Complicating the legal outlook is the upcoming presidential election, which could dramatically shift the trajectory of this case.

If former President Trump is re-elected, there is little doubt that the plan for Forgiveness 2.0 would be abandoned, effectively ending the litigation.

Conversely, if Kamala Harris takes office, her administration is expected to continue defending the plan in court, potentially extending the litigation process.

Borrower Planning and Strategy

If your loans are potentially eligible for forgiveness under Forgiveness 2.0, no additional steps are necessary at this time to qualify or get your loans discharged. However, it is crucial to monitor the situation closely in case any changes require quick action.

Odds of Forgiveness 2.0 Happening

Estimating the chances of Forgiveness 2.0 becoming a reality is difficult. The legal footing for this plan is likely stronger than the initial attempt to forgive up to $20,000 per borrower, but the recent setbacks in the SAVE litigation and the initial ruling in this case indicate that winning in court will be challenging.

When combined with the uncertainty surrounding the upcoming election, the most likely outcome at this point is that Forgiveness 2.0 may not come to fruition.

Stay Up to Date: Student loan rules are constantly changing, and lawsuits often complicate matters. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Will Student Loan Forgiveness 2.0 Hold Up in Court? A Legal Perspective and Analysis appeared first on The Student Loan Sherpa.

Unfortunately, the Department of Education says the SAVE pause during the litigation will not count toward IDR or PSLF forgiveness. This puts borrowers in a difficult situation, as explained below.

This page will be updated as the SAVE cases progress through the court system and more information becomes available.

Key Events in the SAVE Litigation Timeline

Two cases have been filed seeking to block the SAVE repayment plan. One case was filed in Missouri and the other in Kansas.

• 6/24/24: District court judges in Missouri and Kansas each issue preliminary injunctions regarding the SAVE plan. One court prevents forgiveness under SAVE while the other court blocks the 5% calculation for borrowers with undergraduate debt.
• 6/30/24: The 10th Circuit Court of Appeals issues an order allowing the Department of Education to move forward with the 5% calculation for undergraduate debt. This overruled the Kansas judge who initially granted the preliminary injunction.
• 8/9/24: The Eighth Circuit blocks all forgiveness, interest subsidies, and the discretionary income calculation under SAVE.
• 8/13/24: The government files an emergency request to the Supreme Court asking for the SAVE plan to be reinstated.
• 8/28/24: The Supreme Court declines to intervene with the preliminary injunction. It will stay in effect until the case is resolved.

Sherpa Tip: This timeline only includes the SAVE litigation cases. Forgiveness 2.0 and any related litigation will be on a saparate page.

Current Status: A Long Wait Before We Get a Resolution

Now that the Supreme Court has declined to rule on the Eighth Circuit’s preliminary injunciton ruling it means that SAVE will be temporarily blocked until the case is finally resolved.

This means that borrowers are likely in for a wait of several months or even potentially years before there is a final ruling in the case.

For now, borrowers enrolled in SAVE will not be charged interest and they won’t have to make any payments.

Possible Outcomes and Their Odds (Odds Updated 8/28)

The section that follows is an educated guess. Litigation is unpredictable, and when you factor in the political components of these cases, it makes guessing a final result even harder.

That said, lots of you have emailed me asking about my opinions on various aspects as well as what the worst outcomes look like. I’m doing my best to give you my thoughts on this situation and to give you a range of what might happen.

I will update the odds as new information becomes available.

The Best Case Scenario: The Courts determine that the SAVE plan is within the authority of the Department of Education and the SAVE takes effect as planned. Congress granted the President the authority to create an income-driven plan and chose not to define exactly how it would work. Now that the Chevron case has been overturned, it appears as though the courts will take a bigger role in determining the specifics of the authority granted by Congress. As a result, the best case scenario, while very possible, isn’t the most likely outcome. Odds: 20%

The Most Likely Scenario: Parts of SAVE are eliminated and parts of SAVE survive. The parts of SAVE that are in the most jeopardy are the 5% calculation for undergraduate borrowers and the early forgiveness provision for borrowers with smaller balances. These parts are in the greatest jeopardy because experienced district court judges, appointed by Obama, felt that issuing a preliminary injunction to block these features was necessary. Generally speaking, judges only grant a preliminary injunction if they feel the party requesting the injunction is reasonably likely to succeed. Odds: 50%

The Bad Outcome: The entire SAVE regulations are blocked. In the event that the courts decide the President and Department of Education acted beyond their Congressional approval, they could block the SAVE plan completely. This would erase the favorable discretionary income calculation and the generous SAVE subsidy among other features. Borrowers currently on SAVE would likely revert back to REPAYE. Odds: 30%

The Worst Case Scenario: The court determines that only the plans explicitly created by Congress are valid. This would mean that both SAVE and REPAYE are eliminated. Many borrowers would be stuck with the IBR repayment plan in that situation. Fortunately, this outcome is highly unlikely. The courts are much more likely to prevent a new plan from being created than they are to wind back a plan that is already in use. Additionally, millions of borrowers have signed contracts with the government where REPAYE and all the other non-SAVE repayment plans are a term of the contract. Odds: <1%

Evaluating Your Next Move: Key Factors for Borrowers

While the interest-free forbearance is a positive, the uncertainty around its duration and the implications for IDR or PSLF forgiveness complicates matters. In most cases, borrowers should avoid making unnecessary extra payments.

Here are some key factors to consider when evaluating your next move:

Time Until IDR Forgiveness: If you are nearing IDR forgiveness, moving out of SAVE might be a smart move. Under the current rules, loans forgiven under IDR will be taxed starting in 2026. If you think you might be right on that border, swift action could be necessary. The tricky part about making this move is that processing times are currently very slow for IDR applications.

PSLF Job Stability: For borrowers working toward PSLF, moving out of SAVE probably doesn’t have the same urgency. The buyback program protects borrowers in this situation. There are some hoops to jump through, and borrowers will want to set aside some money to prepare for the cost of the buyback, but changing repayment plans is probably more o of a hinderance than a help at this time.

Repayment Strategy: Borrowers who are unlikely to reach forgiveness under PSLF or IDR should stay on SAVE. The pause gives them the opportunity to put some extra money aside and knock out their debt more efficiently.

Repayment Plan Switching Headaches: If you’ve tried to do anything with your loans over the past year, you know federal servicers are overwhelmed. Processing times are often delayed, and switching out of SAVE and then switching back in at the conclusion of the litigation could be challenging.

What Happens if I Change Plans? Even though electronic applications are not available on studentaid.gov, borrowers can still submit a paper application.

When the application is initially submitted, borrowers will be placed on a processing forbearance and that time will count toward IDR and PSLF forgiveness, but interest will also accrue.

Once 60 days have elapsed on the processing forbearance, borrowers will be placed in a general forbearance where interest will no longer accure, but the time will not count toward PSLF or IDR forgiveness.

Interest Capitalization: In the past, changing repayment plans led to interest capitalization. New rules now only capitalize interest when statutorily required. Notably, if a borrower switches from IBR to SAVE (or any other repayment plan) interest capitalizes. This shouldn’t be much of an issue because borrowers on SAVE won’t have any interest to capitalize due to the subsidy. However, if you qualify for low monthly payments on IBR and the interest charges are greater than your monthly bill, you may have a larger balance if you return to SAVE at the end of the litigation pause.

Final Tip: Stay Informed

Stay informed as this is a fast-moving situation. Follow updates closely, and be prepared to adjust your repayment strategy as needed.

At this time, there are not upcoming deadlines or urgent actions that may need to be taken. However, that all could change quickly. Monitoring these cases is important. It’s early August, and there could be many changes coming before the month is over.

Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers up to date on the latest changes and upcoming deadlines.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post SAVE Lawsuits: Current Status, Next Steps, and Tips for Borrowers Navigating the Chaos appeared first on The Student Loan Sherpa.

In response, the Department of Education announced plans to pause payments and interest for borrowers impacted by these injunctions. This new pause mirrors the one that lasted over three years during the COVID-19 pandemic. However, not all borrowers will automatically qualify this time around; some will need to take additional steps.

Who Gets the Payment and Interest Pause Right Away

Currently, about 8 million borrowers are on the SAVE plan. Of these, approximately 4.5 million already qualify for $0 per month payments, receiving a monthly subsidy that covers unpaid interest.

The more than 3 million remaining borrowers will now see their payments paused and interest suspended. However, borrowers not currently enrolled in SAVE will need to sign up to benefit.

How to Sign Up if You Are Not Already on SAVE

The Department of Education has temporarily suspended online applications for the SAVE plan for an estimated 4-6 weeks. However, borrowers can still enroll using a paper application.

The quickest way is to fill out the form and upload it to your servicer using the secure upload feature on the servicer’s website.

Sherpa Tip: Some student loans are not eligible for SAVE. If you have FFEL loans, you will need to consolidate your loans to be eligible. Parent PLUS loans are not eligible even if consolidated, but the double-consolidation loophole can allow Parent PLUS borrowers to qualify for SAVE.

How Long Could This Last?

The Department of Education has not specified the duration of this new payment and interest pause.

It is possible that it will last while the SAVE lawsuits are pending. Given that litigation can take years, borrowers might enjoy another year or two without payments and interest.

However, it’s possible the pause is short. The district court could lift the injunction, requiring borrowers to resume payments as planned. Alternatively, the court could expand the injunction to block this latest move.

Risks of Signing Up for SAVE Now

SAVE qualifies for all forgiveness programs, so time on the payment and interest pause should count toward IDR and PSLF loan forgiveness.

However, if you have a higher income, there is a risk of a sudden spike in payments once the pause ends. You can always switch to a different repayment plan later, though there are limitations with PAYE and ICR.

A federal judge may not approve this pause and could force the Biden administration to resume payments. It is also possible, though unlikely, that the judge could retroactively charge borrowers for interest during this new pause.

Ideal Strategy for Borrowers Moving Forward

If you prefer a “set it and forget it” approach, taking advantage of this pause might not be for you. Immediate action is required, and ongoing monitoring will be necessary. Higher earners might see a spike in their monthly bills when the pause ends if they are not careful.

For most other federal borrowers, this new pause presents an excellent, albeit temporary, opportunity.

With payments and interest paused, you can place your regular payments in a high-yield savings account. This balance can grow during the pause, giving you funds to either aggressively pay down your debt or pursue another financial goal when the pause ends. In the highly unlikely event of retroactive charges, having the money set aside will protect you.

Stay Up to Date: As we learn more about this new pause, including any details on when it will end, newsletter recipients will get a warning in their inbox.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post 3 Million Student Loan Borrowers Receive Another Payment and Interest Pause – Here’s How to Sign Up appeared first on The Student Loan Sherpa.

Sherpa Thought: This article is not meant to spark a political debate or take sides in the upcoming election.

Instead, it is crafted to be an analysis of the potential consequences of the 2024 election for student loan borrowers.

Forgiven Student Debt: Taxed Starting in 2026

One of the first major concerns for borrowers is the taxation of forgiven student debt. Starting in 2026, student debt that is forgiven could be considered taxable income. This means that borrowers might face significant tax liabilities, potentially limiting the financial relief they experienced from forgiveness.

I’m still hopeful that the tax on forgiven student debt will be permanently eliminated, but a second Trump term likely increases the odds of the tax on forgiveness returning.

A Halt on New Help for Borrowers

During a second Trump presidency, it’s likely that initiatives to fix past issues, and the introduction of new repayment plans would cease. Borrowers should not expect new improvements or relief measures.

Cessation of Forgiveness Initiatives

President Biden has been aggressive about remedying past student loan issues with programs like the one-time account adjustment and temporary expanded public service loan forgiveness. These initiatives have provided significant relief to borrowers. However, Trump hasn’t shown any inclination to expand or fix existing federal student loan repayment programs. Under his administration, such programs would likely be halted, leaving many borrowers without anticipated relief measures aimed at easing their debt burdens.

Stagnation of Repayment Plans

The introduction of new repayment plans would also likely stop, meaning borrowers would not see new options designed to ease their repayment burdens. The focus would shift away from creating new, borrower-friendly policies, leaving many to rely on existing plans that may not fully address their financial needs.

SAVE Plan: A 50/50 Chance of Survival

The SAVE (Student Aid and Value Education) plan, which aims to provide financial relief to borrowers, faces uncertain prospects. Its survival is estimated at 50/50 under a Trump administration. The GOP has been largely opposed to the SAVE plan, and multiple lawsuits threaten its existence.

Challenges to Eliminate SAVE

Eliminating the SAVE plan would not be straightforward. It would require substantial time and effort to roll back the rules.

While Trump’s core supporters might favor the elimination of the plan, it doesn’t present a significant political victory he could boast about. Additionally, it would directly harm many of his supporters who benefit from the SAVE plan.

Rolling back an existing rule is difficult, increasing the likelihood that it survives.

Potential for Grandfathering Existing Borrowers

There’s also a possibility that the administration might grandfather in existing borrowers under the SAVE plan, allowing them to continue benefiting while preventing new borrowers from enrolling. This compromise could be a strategic move to avoid widespread backlash while still fulfilling a political agenda.

PSLF in a Second Trump Administration

The Public Service Loan Forgiveness (PSLF) program, which forgives the remaining student loan balance for borrowers working in public service for ten years, is another area of concern of many borrowers.

The good news is that PSLF is almost certain to survive. PSLF is established by statutory law, making it nearly impossible to eliminate without 60 senators’ approval.

However, the program could be made significantly more difficult to access.

In the past, many borrowers found it challenging to qualify for PSLF, and a second Trump administration might reinstate similar hurdles, reversing the recent ease of qualification.

Other Programs and Protections Remain

Income-Driven Repayment (IDR) forgiveness will likely still exist, as it is also protected by statutory law. The Income-Based Repayment (IBR) plan, another critical option for borrowers, is similarly safeguarded.

Looking beyond existing statutes, there are some additional protections for borrowers.

Master Promissory Note: A Key Guardrail

The master promissory note, which outlines the terms and conditions of federal student loans, serves as a key guardrail for borrowers.

Specifically, the REPAYE plan is mentioned in the master promissory note.

This means that even if the SAVE plan were eliminated, it would likely revert back to REPAYE, which carries many benefits similar to SAVE. It ensures that certain rights and protections cannot be easily stripped away, even by new administrative policies.

Complexity of the System

The complexity of the student loan system itself acts as a barrier to drastic changes.

Student loan programs have a meaningful impact on many lives, and while there is opposition to these programs, it is not a primary voting issue for many detractors. This complexity and the broad, deep-rooted benefits of these programs make significant overhauls less likely.

Final Thoughts

A second Trump presidency could bring several challenges for student loan borrowers.

The taxation of forgiven debt, the potential cessation of new relief measures, and the uncertain future of the SAVE plan and PSLF are key concerns.

However, statutory protections and the inherent complexity of the system provide some safeguards. Borrowers should stay informed and prepared for possible changes while advocating for policies that support their financial well-being.

The post The Worst-Case Scenario for Student Loan Borrowers in a Second Trump Presidency appeared first on The Student Loan Sherpa.

The calculator below was created using the exact terms as defined in the federal registrar. The Department of Education has also released a fact sheet that provides a nice summary of the new SAVE plan.

Sherpa Tip: This calculator estimates SAVE payments using the fully implemented SAVE calculation. This means that undergraduate and graduate loan balances are needed. Scroll down for more details.

It has been updated to include the new 2024 Federal Poverty Level Guidelines.

REPAYE, New REPAYE, and SAVE

The new SAVE plan will essentially replace several different IDR plans.

Notably, the REPAYE plan has been completely replaced by SAVE plan.

By July 1, 2024, the transition from REPAYE to SAVE should be complete. At that time, the calculations become even more favorable for borrowers with undergraduate debt.

The calculator above is designed to help borrowers project payments on the final version of SAVE. If you enrolled before July 1, 2024, your payment should drop in July if you have any undergraduate debt. If you have only undergraduate debt, the July 1 changes should cut your payment in half.

Want to Sign Up? Signing up for SAVE is easy, but there are some mistakes borrowers will want to avoid.

Important Eligibility Notice

All federal student loans would be eligible for this repayment plan except for two notable exceptions.

FFEL Loans and Perkins Loans – FFEL and Perkins loans are not eligible for SAVE but could be made eligible through federal direct consolidation.

Parent PLUS Loans – Parent PLUS loans are not eligible for any IDR plan other than the income-contingent repayment plan (ICR). The proposed changes would not alter this rule. Unlike FFEL loans, a simple consolidation does not fix the Parent PLUS eligibility issue. However, the double-consolidation loophole may work for the borrowers who complete the process in time.

Note for Married Couples

Calculating monthly payments without counting spousal income is now possible with the SAVE plan. This is a significant change from REPAYE, where married couples could not file separately to exclude spousal income from monthly payment calculations.

If you file separately, enter only your adjusted gross income in the line asking about income. If you are filing jointly, please enter your combined income.

Calculator Shortcomings

This calculator is not a perfect tool. There are some potential issues that borrowers using it should understand.

• The SAVE Plan could change. It’s possible that Congress passes legislation or someone files a lawsuit that causes the new plan to get blocked. Such an event is unlikely, but it remains a possibility.
• Mistakes happen. If a number gets transposed or there is confusion about eligibility, payments might not happen exactly as you hoped.
• Calculations for married couples get complicated. If you and your spouse both have federal student loans, filing separately may become extra beneficial under the new plan. That calculation is a bit more complicated and will be available in a future update.
• No Cap on SAVE Payments. If you have a small loan balance and a large income, it’s possible that you might be better off enrolling in a balance-based plan such as the 10-year plan or the graduated repayment plan. In this scenario picking a different IDR play might also make sense.

Plan Highlights and Other Benefits

The big headline is the lower payments that you have probably seen after using the calculator.

These lower payments happen for two main reasons. First, discretionary income gets redefined for the SAVE plan. Previous calculations used a discretionary income of 150% of the federal poverty level. This new plan would use 225% of the federal poverty level.

Additionally, undergraduate borrowers only pay 5% of their discretionary income toward their loans. In the past, it was a minimum of 10%. Borrowers with only graduate debt will still pay 10%. This isn’t really fair to teachers and social workers, but it is still an improvement. Those with a mix will pay a weighted percentage between 5% and 10%. For this reason, the calculator asks about undergraduate and graduate debt.

Beyond the lower payments, there are some other significant changes:

• Borrowers with balances of $12,000 or less are eligible for forgiveness after just ten years instead of the standard 20. This benefit is available starting July 1, 2024.
• The already excellent REPAYE interest subsidy will cover 100% of a borrower’s unpaid monthly interest. This benefit is available from day one of the restart. Use this calculator to estimate the value of the monthly SAVE subsidy.
• Borrowers can file separately to reduce the marriage penalty.

Repayment Plan Alerts

Because we are dealing with some legal challenges to the new repayment plan, I’ve set up a mailing list to notify readers of any big changes.

At most, you will receive one email per month. The idea is to highlight the critical changes and essential deadlines that borrowers need to know.

The post SAVE Calculator: Estimate Payments on Biden’s New IDR Plan appeared first on The Student Loan Sherpa.

Borrowers now have until June 30, 2024, to consolidate their federal student loans and take advantage of the generous rules for awarding pre-consolidation progress toward forgiveness. This extension is particularly crucial for Federal Family Education Loan Program (FFELP) borrowers.

Despite the deadline being extended multiple times, today’s announcement likely marks the final extension. The urgency stems from the impending implementation of the full version of the SAVE rules, set to take effect on July 1, 2024. Under these new rules, borrowers who consolidate will receive the weighted average amount of their existing loans’ progress prior to consolidation.

Key Rule Comparisons

Previous Rules:

• Before the Biden administration’s changes, consolidating federal student loans would reset a borrower’s progress toward forgiveness under both the Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) forgiveness programs.

Current Temporary Rules:

• The temporary rules count certain deferments, forbearances, and activity on balance-based plans that typically do not count toward forgiveness. This includes loans that were previously consolidated under the old rules.
• Borrowers receive maximum progress based on the included loans. For example, if a borrower has one loan with 10 years of progress and another with 6 years of progress, the consolidated loan will reflect the full 10 years of progress.

New SAVE Rules (Effective July 1, 2024):

• Borrowers will receive a weighted average of their progress. For instance, if a borrower has a $3,000 loan with 10 years of progress and a $1,000 loan with 6 years of progress, consolidating the two will result in a loan with 9 years of progress.
• Conversely, if a borrower has a $3,000 loan with 6 years of progress and a $1,000 loan with 10 years of progress, the consolidated loan will have 7 years of progress.

Why Consolidation Before June 30th is Crucial for FFELP Borrowers

For FFELP borrowers, consolidating before the June 30th deadline is almost essential. The temporary rules provide a unique opportunity to maximize progress toward forgiveness, which will no longer be available after the deadline.

A failure to consolidate means that prior payment activity on plans such as the standard repayment plan or the graduated-extended repayment plan will not count toward IDR or PSLF forgiveness.

Even for borrowers without FFELP loans, consolidation is often still advisable, especially for those with loans showing varying amounts of progress toward forgiveness.

Even though borrowers with federal direct loans will recieve the adjustment automatically, there are still potential benefits to consolidating before the adjustment happens.

For example, borrowers who have returned to school after working for a few years and those with loans reflecting different stages of progress should strongly consider consolidation. The temporary rules maximize existing progress. By not consolidating, these borrowers will have loans with different forgiveness timelines.

Final Thoughts

With the final extension in place, impacted borrowers should act swiftly to consolidate their loans before the June 30th deadline.

The benefits of the current temporary rules provide an unprecedented opportunity to maximize progress toward loan forgiveness. As the new SAVE rules take effect on July 1, 2024, this likely represents the final opportunity to take advantage of these generous rules.

If you have questions about how this deadline impacts you, consider calling your loan servicer, reading about the full terms of the adjustment at studentaid.gov or scheduling an consultation to discuss how to maximize the benefit of the adjustment as part of your broader repayment strategy.

The post Biden Administration Extends Student Loan Consolidation Deadline appeared first on The Student Loan Sherpa.

Close to five months later, we now have a much better understanding of this new plan and how it will look.

Even though the full details haven’t been finalized, it is safe to say that there is a genuine possibility that millions of borrowers will see some form of student loan forgiveness in the next twelve months.

Who Qualifies for Forgiveness Under the New Plan?

Spelling out the details of the new forgiveness proposal is tricky for two different reasons. First, we are in the middle of the rulemaking process. The committee could change things in a later revision. Second, there isn’t just one group that benefits. Instead, a long list of circumstances could lead to relief.

Initially, the Biden administration identified four groups of borrowers that could be targeted for relief. These borrowers included:

• Those with loan balances larger than the amount initially borrowed despite payments made over time;
• Borrowers who went to a school that did not provide them with sufficient value that would allow them to repay their student loans;
• People who still have student loans after 25 years or longer; and
• Borrowers who have not applied for relief under existing student loan forgiveness programs but could nevertheless qualify.

The initial four groups of borrowers targeted for relief clearly need and deserve some help. However, the categories are narrow enough that most borrowers won’t benefit. Nonetheless, there is reason to hope for partial loan forgiveness for borrowers with large balances.

Fortunately for borrowers, the list of people who might benefit has grown significantly. The Biden administration is now looking to help borrowers with identifiable financial hardships who don’t fit within one of the other four categories and are not provided relief through current student loan programs.

After the committee gathered last week, they identified the following groups potentially deserving of relief:

• Borrowers currently in bankruptcy.
• Those with defaulted federal student loans.
• Pell grant recipiants.
• Individuals receiving food stamps, Medicaid, or Affordable Care Act subsidies for health insurance.
• Borrowers with a documented disability, such as those receiving Social Security disability.
• Incarcerated borrowers.
• Borrowers with a demonstrated history of being unable to repay their student loans.
• Senior and elderly borrowers.

I’ve highlighted the second to last group because this category is the most ambiguous. At this point, it appears borrowers who have long periods of hardship forbearances or deferments and/or histories of $0 per month payments are the intended group.

What to Expect from the New Forgiveness Plan

One of the priorities of the committee and the Biden administration is to automate forgiveness. It appears they finally recognize that the existing rules are too complicated, and the people who need the most help may not ever be aware of the programs. Additionally, given the many issues with servicers at the restart, asking servicers to administer a new program or process new applications is probably asking too much.

Thus, whatever relief happens, expect it to arrive automatically.

As for how much help to expect, specific numbers have not been thrown around. Given that the current effort is designed to replace the plan struck down by the Supreme Court, $10,000 to $20,000 per borrower could be a likely amount.

Forgiveness 2.0 vs. the Supreme Court

Borrowers have very good reason to be skeptical of the new attempt at forgiveness becoming a reality. The Supreme Court striking down the last effort was both heartbreaking and budget-busting.

However, this time around, things could be much different.

Instead of forgiveness for all, we are talking about forgiveness for those who could really use the help. Legally speaking, this distinction means that the new forgiveness program should comfortably fall within the Department of Education’s authority to waive or modify debt.

Lawsuits might still get filed, but a successful lawsuit could be a major challenge for opponents of loan forgiveness. Challenges to more narrow debt relief programs have struggled in the courts.

Putting Student Loans on the Ballot in 2024

Those who are more skeptical may see the latest attempt at forgiveness as a political move. There is almost certainly some truth to this point of view.

That said, the political aspect of things has advantages for borrowers. We are less than one year away from the 2024 election. Biden will have to move quickly to get through the rulemaking process before that deadline.

Additionally, opposing student loan relief might not be a popular position for a candidate on the ballot. Some politicians who might otherwise be vocally opposed to relief may keep their mouths shut this time around.

Odds of this Forgiveness Attempt Actually Happening

Whenever there is a new proposal, this is the question I get asked the most by borrowers.

In this case, I think there is a pretty good chance that some form of new forgiveness will happen in 2024. This particular attempt at student loan relief is more narrow, and it is on much more solid legal footing. Additionally, Biden won’t need to get any legislation through Congress to get it approved.

For those unfamiliar with the federal rulemaking process, it was used most recently to create the new SAVE plan.

Strategy for Borrowers Trying to Plan Ahead

If a new round of student loan forgiveness is a possibility, it means borrowers should plan ahead.

For starters, some self-assessment is critical. If you don’t fall into any of the categories targeted for relief, the final product likely won’t apply to you.

However, if you fall into one of the groups listed above, some extra caution for handling your student loans is probably justified. Here are some tips to avoid jeopardizing future forgiveness:

• If you qualify for the SAVE subsidy, the next year is probably a bad time to make extra payments.
• If you are considering refinancing your federal loans, waiting might be the smart approach. Refinancing the debt into a private loan would mean that it can’t be forgiven.
• Focus on other financial goals. To maximize potential forgiveness, make minimum payments on your federal loans and use any extra cash to build up your emergency fund or pay down other debts, such as private student loans.

Stay Up to Date: To help keep up with rule changes and new programs, I’ve created a monthly newsletter to keep borrowers informed. If there are any major announcements on this latest forgiveness attempt, it will be included in the newsletter.

Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to make sure you don’t overlook any critical developments.

The post Biden’s Plan to Get Around the Supreme Court and Forgive Student Loan Debt appeared first on The Student Loan Sherpa.

The meeting could start a process that delivers massive relief to student loan borrowers. A committee meeting might not sound like a big deal, but the negotiated rulemaking process created the new SAVE plan.

This time around, the Department of Education has some specific goals, and there is an opportunity for clever borrowers to influence student loan policy. Partial loan forgiveness appears to be a realistic goal for borrowers in this session.

Student Loan Rulemaking 101

The federal rulemaking process is a critical component of student loan policy.

Put simply, Congress creates legislation that addresses the big picture items. Laws passed in Congress established federal loans and created the Public Service Loan Forgiveness Program. Within those laws, the executive branch is charged with oversight and implementation.

Federal agencies use rulemaking to iron out the policy details. Recent rulemaking efforts created the SAVE plan and the new SAVE subsidy to help borrowers with interest.

Partial Forgiveness is the Big Ticket Relief to Watch

For the latest round of rulemaking, the Department of Education posed some very specific questions to the committee.

These questions give us a good idea of the goals of this round of negotiations.

Notably, the Department of Education asked the following questions:

• Many borrowers have seen their balances grow due to the accrual of unpaid interest such that many borrowers now have overall balances higher than what they originally borrowed. Are there ways to help borrowers who are in this situation that could put them on a better path for successful repayment?
• Congress and the Department have provided borrowers with many additional benefits for their student loans over time. There are many borrowers, however, who borrowed or entered repayment before the creation of those various benefits. Since those benefits were not available when those borrowers took out their loans, those borrowers may have struggled to repay their loans in ways that those taking on debts today may not. How should the Department treat loans that first entered repayment many years ago, including well before creating additional benefits? How should the Department apply the FCCS compromise principle to loans that the borrower is unable to repay in a reasonable amount of time?

Sherpa Thought: These requests from the Department of Education seem to be inviting a partial forgiveness solution.

Because the Supreme Court stopped forgiveness for all, the next round of student loan relief appears to be focused on borrowers with large balances and little chance of repaying the debt.

Retroactive SAVE and Other Partial Forgiveness Options

One answer to the Department of Education questions would be applying the SAVE subsidy retroactively.

Before this year, many borrowers on IDR plans saw their balances grow each month. This happened when the monthly IDR payment was smaller than the interest charges on the loan. Many borrowers saw loan balances grow far beyond what they had already borrowed.

As balances have grown, it has made repayment difficult or nearly impossible for some. Retroactively awarding a SAVE subsidy could lower balances to make repayment more reasonable.

However, the committee could choose to go in any direction. They may decide that the current SAVE program is sufficient. They may determine that a retroactive subsidy is insufficient and provide borrowers with more relief.

We are very early in the process.

The Big Challenge for Policymakers

Another item of interest is the Department of Education’s apparent recognition that student loan policy is too complicated.

The issue paper notes that “complex individualized reviews of borrowers’ circumstances that rely on extensive information not easily accessible from administrative data will not be feasible.” They want to create something straightforward and unlikely to cause further delays or confusion.

Forgiving some debt for every borrower is unlikely to survive in the courts. Partial forgiveness or targeted relief could quickly get complicated to the point where few borrowers actually benefit.

Time for Borrowers to Step Up

This is a tricky situation, begging for a clever idea.

The Department of Education has already outlined very specific goals, but the idea doesn’t have to come from the rulemaking committee.

Now is the time for creativity. If you come up with a solution to the questions posed to the committee, you could help yourself and millions of other borrowers.

Please share your thoughts in the comments of this article or send me an email. If we get some good ideas going, I’ll do everything I can to get them in front of the eyes of committee members.

The post Partial Loan Forgiveness Could be the Next Big Student Loan Policy Change appeared first on The Student Loan Sherpa.