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.

Ironically, due to an unusual series of events, the group of borrowers who may benefit most from the SAVE plan are not necessarily those in the most financial distress, but rather borrowers who are financially better off and able to repay their loans in full.

SAVE Repayment Plan Background and Litigation

The SAVE plan (Saving on a Valuable Education) was designed to fix some of the biggest complaints about previous federal income-driven repayment (IDR) plans. With SAVE, borrowers could protect a greater portion of their income from their student loan payments, and for those with lower balances or without graduate debt, forgiveness could be achieved sooner.

However, several state attorneys general challenged the legality of the SAVE plan, filing a lawsuit to block its implementation. As a result, a preliminary injunction was issued, preventing borrowers from making payments under the plan for the time being. This block will remain in effect until the litigation is resolved, and the case could drag on for years, potentially going all the way to the Supreme Court.

Despite the legal challenges, the Department of Education has offered some protections to impacted borrowers. Most notably, borrowers who signed up for SAVE are placed in an interest-free forbearance while the litigation is ongoing, meaning they are not accruing interest on their loans during this period.

The Big Winner is Borrowers Who Plan to Repay in Full

While SAVE was intended to help borrowers in financial distress, an unintended consequence of the litigation is that borrowers who are focused on repaying their loans in full may come out as the biggest winners. With the payment and interest pause in place, this situation mirrors the COVID-19 payment freeze, which allowed borrowers to make substantial progress on eliminating their debt without accruing interest.

For borrowers who are already in a strong financial position, this pause represents a unique opportunity. They can continue making voluntary payments, chip away at the principal balance, and ultimately pay less in total interest over the life of the loan.

How to Enroll in SAVE to Get 0% Interest

Despite the ongoing litigation, borrowers can still enroll in the SAVE plan, and by doing so, they will receive the 0% interest benefit. The enrollment process is once again available by signing up at studentaid.gov.

Unlike other IDR plans, there is no income cap for SAVE enrollment. Borrowers in any tax bracket can sign up for SAVE and take advantage of the interest relief.

Once enrolled, borrowers are placed in a special forbearance status, meaning that although they are not required to make payments, interest will not accrue on their loans either. This creates a window to plan your repayment strategy without the burden of growing debt.

Maximizing the Benefit

Borrowers looking to make the most out of this situation should consider taking an active approach to managing their loans. One of the smartest moves is to set aside the money you would have used for student loan payments into a high-yield savings account.

By doing this, you gain two key advantages. First, instead of paying interest on your student loans, you can earn interest on your savings. This allows you to turn the payment pause into a financial gain. Second, it gives you flexibility. If you encounter a financial emergency down the road, such as a car repair or unexpected medical expenses, the funds in your savings account will be readily available. In contrast, once a payment is made toward your student loan, that money is no longer accessible.

When the litigation finally ends and payments resume, you can use the money saved to make a lump-sum payment, potentially knocking out a significant portion of your balance or eliminating it entirely. Likewise, you can switch into a more appropriate repayment plan if the new SAVE payments end up being too high.

Final Thoughts

The ongoing SAVE litigation has created a unique opportunity for borrowers to improve their financial standing. Whether you’re aiming for debt elimination or just trying to get through the legal uncertainty, there are strategies you can implement to make the most of this situation.

For borrowers looking to pay off their loans in full, this is a prime opportunity to reduce your balance without accruing interest. By enrolling in SAVE, taking advantage of the interest pause, and using smart savings strategies, you can turn a period of uncertainty into a period of financial gain.

The post SAVE Plan Litigation: Why Higher-Income Borrowers Are The Big Winners appeared first on The Student Loan Sherpa.

For borrowers, understanding the potential duration of the SAVE litigation forbearance is crucial as they navigate this uncertainty. Here’s why these lawsuits could drag on for years, potentially ending up in the Supreme Court.

Lawsuits Take Time to Resolve

While the challenges against the SAVE plan have just begun, federal lawsuits typically take a significant amount of time to resolve. On average, federal civil cases can take about one year to resolve, depending on the complexity of the case and the court’s schedule. However, this statistic includes dismissals and if we just look at cases that go to trial, resolution at the district court level takes on average two years.

For complex cases like the SAVE lawsuit, the timeline could extend even further, potentially exceeding two years.

Appeals and the Potential for a Supreme Court Hearing

After a district court decision, either party can appeal to the circuit court. If two circuits reach different conclusions, it creates a circuit split, making it more likely that the Supreme Court will review the case to ensure consistent legal interpretation nationwide.

Currently, there are two different lawsuits challenging the SAVE plan, each in a separate circuit, which increases the likelihood of divergent rulings.

The Supreme Court, however, is selective in the cases it hears. It receives approximately 7,000 petitions annually but typically accepts only about 100 to 150 of them. For a case to be heard, at least four of the nine justices must agree to grant a writ of certiorari. Cases that involve significant national issues or present unresolved questions of federal law—such as the extent of executive authority in creating repayment plans—have a higher chance of being reviewed. This is especially relevant for the SAVE litigation, given its similarity to previous student loan cases that went to the Supreme Court and the possibility of a circuit split.

How Long the Supreme Court Process Takes

If the Supreme Court agrees to hear a case, the timeline can extend considerably. From the time a case is accepted for review, it generally takes three to six months before oral arguments are heard, as both sides prepare their briefs. After oral arguments, the justices deliberate, and it often takes an additional three to six months for a decision to be issued, depending on the complexity of the case. Altogether, if the Supreme Court becomes involved, it can easily add another year to the case.

Where Is the Line Drawn?

The SAVE litigation isn’t just about student loan policies; it raises broader questions about the scope of presidential authority. The central issue is how much power Congress granted the executive branch to create or modify repayment plans. While previous plans like Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) were established using similar statutory authority without judicial intervention, the SAVE plan’s scope is under closer scrutiny.

Most agree that there are limits. For instance, the President cannot unilaterally create a repayment plan that charges borrowers zero dollars per month for incomes below $3 million per year, with loan forgiveness after just five months. Such an extreme measure would effectively cancel all student debt, which would clearly exceed Congressional authority.

The question for the courts to decide is whether or not SAVE exceeds the authority granted by Congress.

How Long Will SAVE Litigation Forbearance Last?

Given the complexities outlined above, borrowers may face a lengthy period of uncertainty. The SAVE litigation forbearance—which pauses payments and interest accrual while legal challenges are pending—could last as long as the court process continues, potentially stretching several years if the case goes through multiple appeals and ends up before the Supreme Court.

While both parties in these cases will be interested in resolving the case quickly, given the high stakes, it could easily last three years before the cases are resolved.

Will the Election Impact the Lawsuit? The outcome of the 2024 election could impact how long the lawsuit lasts. A Harris administration would almost certainly continue to pursue the SAVE plan. A Trump administration may decide against moving forward with the lawsuit and start the process of unwinding the SAVE regulations.

What Does This Mean for Borrowers?

• Extended Uncertainty: Borrowers might experience long periods of financial ambiguity while waiting for a final resolution.
• Challenges in Financial Planning: The uncertainty around payment obligations makes it difficult to plan for major financial decisions.
• Staying Informed Is Key: Following legal developments can help borrowers prepare for different potential outcomes.
• Avoid Mistakes: Borrowers shouldn’t make extra payments during this forbearance as it won’t count toward forgiveness.

Conclusion

The SAVE litigation is likely to be a drawn-out battle, especially if the case proceeds through appeals and reaches the Supreme Court. While legal proceedings can be unpredictable, understanding the process can help borrowers make informed decisions and prepare for what lies ahead.

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 Why the SAVE Lawsuit Could Drag on for Years and Reach the Supreme Court appeared first on The Student Loan Sherpa.

Because this situation could potentially last for years, depending on how long the legal process takes, many borrowers are unsure how to navigate it.

In most cases, the advice is simple: don’t make extra payments. The analysis differs for borrowers working toward full repayment versus those pursuing forgiveness, but the conclusion remains the same—making unnecessary payments is a mistake.

Extra Payments Don’t Help Chasing Forgiveness

When it comes to making extra payments during forbearance, the most important thing for borrowers pursuing forgiveness is this: extra payments don’t help. Payments only count toward forgiveness if you receive a bill first. Paying more than what is due or making multiple payments doesn’t provide any benefit. You’re simply reducing a balance that will eventually be forgiven anyway.

This holds true regardless of the type of forgiveness you’re pursuing.

PSLF Borrowers Should Use the Buyback Program

If you’re working toward Public Service Loan Forgiveness (PSLF), the forbearance period won’t count toward forgiveness. Everything is paused. The good news for PSLF borrowers is that the buyback program exists.

Though the PSLF buyback is a newer, unproven process, and its costs are hard to project because we don’t know what will happen with SAVE, the best move for most PSLF borrowers is to put the money you’d use for extra payments into a savings account.

Once you reach ten years of public service work, you can use the funds you’ve saved for the buyback. This approach ensures that the money you spend toward your student loans will actually reduce your balance.

IDR Forgiveness Borrowers Don’t Gain From Extra Payments

Borrowers working toward 20- or 25-year Income-Driven Repayment (IDR) forgiveness don’t have the buyback option that PSLF borrowers do.

These borrowers face a tough decision: either pause their progress toward IDR forgiveness or switch to a different repayment plan.

Switching plans is particularly challenging right now because servicers are months behind in processing applications. Moreover, moving to a more expensive plan may end up costing more in the long run—especially if SAVE ultimately prevails in court.

Because making extra payments won’t bring borrowers any closer to forgiveness, the best approach is likely to set the money aside in a high-yield savings account. These funds can be earmarked for the potential tax bill that may arise if forgiveness occurs after 2025.

While there’s hope that time spent under the SAVE litigation forbearance will eventually count toward IDR forgiveness, borrowers can’t rely on it. For now, using the forbearance as an opportunity to build up an emergency fund or pay off other high-interest debt is a smart option.

Want to Switch Plans? If you are eager to get off of SAVE an into a repayment plan that can count toward forgiveness, the online application is not currently available.

Borrowers that wish to swtich back to their old IDR plan will have to use a paper application and submit it via their servicer’s secure portal.

Full Repayment Borrowers Have Better Options

For many borrowers, forgiveness isn’t likely. With growing incomes and shrinking balances, their debt will be repaid long before it could be forgiven.

For borrowers in this situation, enrolling in SAVE and taking advantage of the interest-free forbearance is an incredible opportunity. Pausing interest charges means that 100% of your monthly payments will go toward your principal balance.

However, making extra payments now isn’t the best strategy.

The better option is to put the money into a high-yield savings account during the pause. The more you can save, the better. When the pause nears its end, you can make a large lump-sum payment.

This approach has two advantages. First, it puts interest to work for you instead of against you. Normally, repaying debt is a battle against interest charges, but now, you can earn interest on future payments while your balance remains steady. If you manage to set aside $10,000 in a savings account earning 4% interest, after a year, you’ll be $400 ahead.

Second, this strategy provides flexibility. If your car breaks down or you face an unexpected expense, you can dip into your student loan savings. If you’ve already given that money to MOHELA, it’s usually gone forever.

The One Situation Where Extra Payments Make Sense

If you’ve struggled with managing money in the past and worry that seeing a large balance in your savings account might tempt you to spend it, your strategy might shift.

For example, if you’re close to fully repaying your student loans, one reasonable approach might be to take advantage of 0% interest charges and aggressively pay down the balance until it’s gone. If watching the balance drop each month motivates you, and you’re concerned about being tempted by savings, do what works best for you.

Final Thoughts on the SAVE Litigation Forbearance

We’re in a unique situation right now.

Switching repayment plans is more difficult than usual. The SAVE litigation forbearance comes with both benefits and drawbacks. Most confusing of all, the situation could change in a few months—or stay the same for several years.

It’s not easy to plan.

If you have questions about your situation, feel free to ask in the comments. If you want to find a way to make the most of the SAVE forbearance, let’s set up a call to discuss it.

While this is undoubtedly a confusing time for borrowers, it also presents opportunities.

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 Extra Payments During SAVE Litigation Forbearance Are a Mistake 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.

This combination of legal and regulatory uncertainty is particularly frustrating for borrowers who are trying to plan their finances and choose the best repayment strategy. Understanding the current state of these plans and the potential impacts of the ongoing legal battles is essential for borrowers trying to figure out what to do next.

Sherpa Thought: This article focuses on the consequences of the SAVE litigation. If you want to know more about the SAVE lawsuit, be sure to check out this article.

Current State of IDR Enrollments

As of now, borrowers can enroll in any IDR plan except REPAYE, which has been replaced by the SAVE Plan. However, the enrollment process has become more complex due to ongoing litigation:

• Application Process: Borrowers must submit a paper application or upload a completed PDF application through their loan servicer’s website. Online applications are not currently available due to the legal challenges.
• Administrative Forbearance: Once a new IDR application is submitted, borrowers are placed on administrative forbearance for up to 60 days. During this period, interest accrues on the loans, but the time counts toward both IDR forgiveness and Public Service Loan Forgiveness (PSLF).
• General Forbearance: After the 60-day administrative forbearance, borrowers are moved to general forbearance if the application process is still ongoing. During general forbearance, interest does not accrue, but the time spent in this status does not count toward forgiveness.

PAYE, ICR, and REPAYE: The Impact of SAVE and Litigation

PAYE, ICR, and REPAYE were all created under the same congressional authority as the SAVE Plan. This shared origin has raised concerns about the long-term outlook of these plans, especially after a broad and arguably unclear preliminary injunction cast doubt on forgiveness under any of these plans.

However, it’s important to note that ICR, PAYE, and REPAYE should not be impacted by any final ruling in the SAVE case. The plaintiffs in the SAVE litigation are not seeking to overturn the regulations governing these older plans. Additionally, the Administrative Procedure Act (APA) makes it difficult to challenge regulations that have been in place for over six years, which provides an additional layer of protection for ICR, PAYE, and REPAYE. This makes new lawsuits and future challenges to PAYE, ICR, and REPAYE unlikely.

Even though the rules for these plans are unlikely to be overturned or challenged directly, they can still be eliminated by the SAVE regulations. As the later sections explain, SAVE as currently written significantly impacts these other IDR plans and could phase them out over time.

Thus, the outlook for all IDR plans is direcly impacted by the SAVE ligitation. If SAVE wins in court, availability of some plans becomes limited. If SAVE loses, we revert back to older rules. Because each plan is different, the potential changes and impacts from SAVE are also slightly different.

PAYE: What Happens if SAVE Survives vs. SAVE Gets Struck Down

PAYE (Pay As You Earn) is currently closed to new enrollments under the SAVE regulations. Borrowers who were already enrolled in PAYE can remain on the plan, but no new borrowers can sign up.

If the SAVE Plan survives the ongoing litigation, PAYE will remain closed to new borrowers. However, if the new SAVE regulations are struck down, PAYE could be reopened for new enrollments, allowing borrowers to choose this plan if it better suits their financial situation.

ICR: Different Rules for Parent PLUS Borrowers

ICR (Income-Contingent Repayment) remains available for borrowers with Parent PLUS loans, but it is otherwise closed to new enrollments, similar to PAYE.

If the SAVE regulations continue, ICR will remain an option solely for Parent PLUS borrowers. However, if the SAVE Plan is overturned, ICR could once again become available to all borrowers, offering another option for those who might benefit from its unique terms.

IBR: Statutory Certainty

IBR (Income-Based Repayment) is currently available to eligible borrowers and is considered a secure option due to its statutory foundation.

The SAVE litigation revolves around whether the Department of Education exceeded its authority granted by Congress when creating the SAVE Plan. IBR, however, is fundamentally different because its terms and conditions were established directly by Congress. This means that any changes to IBR would require new legislation, providing a stable and secure option for borrowers.

Under the SAVE regulations, borrowers who have been on SAVE for a total of 60 months are not eligible to sign up for IBR. If SAVE is struck down, this 60-month restriction would likely be eliminated, ensuring that IBR remains accessible to all eligible borrowers.

REPAYE: Modified and Replaced by SAVE

REPAYE (Revised Pay As You Earn) has been modified and renamed to become the SAVE Plan. Borrowers who were previously enrolled in REPAYE were automatically transitioned to SAVE. As a result, REPAYE is no longer available for new enrollments.

If the SAVE Plan survives, REPAYE will be permanently replaced by SAVE. However, if the SAVE Plan is struck down, REPAYE could be reinstated, allowing borrowers who preferred REPAYE’s terms to once again enroll in the plan.

It is also likely that if SAVE is struck down, borrowers who signed up for SAVE will be moved back to REPAYE.

Expect More Changes Ahead

The future of PAYE, IBR, REPAYE, and ICR hinges on the outcome of the SAVE litigation, but the legal protections and statutory foundations of these plans offer some security.

Borrowers should remain informed about ongoing legal developments and understand how different scenarios might impact their repayment options. Whether SAVE survives or gets struck down, understanding the current state of these plans and their potential future is crucial for making informed decisions about your financial future.

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.

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The post The Future of PAYE, IBR, REPAYE, and ICR: Navigating Uncertainty and Understanding Your Options appeared first on The Student Loan Sherpa.

To address the fallout from the litigation, the Department of Education placed all borrowers enrolled in SAVE into a forbearance and suspended interest charges. While this move was a commendable first step to mitigate the damage caused by the lawsuit, it is not enough.

Limitations of the Current Forbearance

One of the critical issues with the lawsuit forbearance is that the payment pause time will not count towards Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) forgiveness. For borrowers on a tight PSLF timeline or those hoping to achieve IDR forgiveness before the tax on forgiveness returns in 2026, the forbearance poses a significant problem. Although there are several options available for borrowers to work around this issue, each comes with considerable drawbacks.

To better support borrowers impacted by the SAVE litigation, the Department of Education should reinstate the Revised Pay As You Earn (REPAYE) plan.

Why Isn’t REPAYE Available?

As part of the SAVE regulations, the SAVE plan replaced REPAYE. Consequently, the Department of Education and loan servicer systems no longer have REPAYE in their systems.

At the time SAVE was introduced, it seemed like a logical step, as SAVE was objectively better than REPAYE in many respects.

How the Return of REPAYE Could Help

Reinstating REPAYE could provide several benefits for borrowers:

• Progress Toward Forgiveness: Borrowers could start making progress toward forgiveness if they choose not to accept the forbearance. This could be especially helpful for those who are close to achieving forgiveness.
• Avoiding Interest Capitalization: Currently, many borrowers may have to consider switching to the Income-Based Repayment (IBR) plan. However, switching to and from the IBR plan causes statutorily mandated interest capitalization, which would be a significant setback for those impacted.

Potential Long-Term Benefits of REPAYE

Reintroducing REPAYE may not be just a temporary solution.

If the SAVE plan ultimately loses in court, the elimination of REPAYE under SAVE regulations will be reversed, making REPAYE the long-term plan that many borrowers need.

Legal Argument/Requirement for Bringing Back REPAYE

The Eighth Circuit’s injunction on all of the SAVE rules includes the regulations that eliminated the REPAYE plan. Technically, the SAVE regulations altered the rules of REPAYE and renamed it SAVE. The injunction nullifies those changes and the name change. Therefore, by not making REPAYE available, the Department of Education may arguably be violating this ruling.

Suing the government is notoriously complicated, but a failure to make REPAYE available to borrowers opens the door to potential borrower lawsuits.

Final Thought

While the forbearance and interest suspension provide relief for many borrowers, those who miss out on PSLF or have their IDR forgiveness taxed are significantly worse off. To fully address the issues caused by the SAVE litigation, the Department of Education should promptly reinstate the REPAYE plan.

The post The Department of Education Needs to Bring Back REPAYE ASAP 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.

For borrowers who qualify for $0 per month payments, it means their student loan is essentially interest-free during this time.

I’ve heard from many borrowers who want to maximize this subsidy and pay down their loans as quickly as possible. Guidance here is especially complicated because the Department of Education has altered the guidance that it gives borrowers who receive the subsidy. Arguably, there is a policy change at play here.

Thus, we need to cover three different situations:

1. What is the rule if you make extra payments while on the SAVE plan?
2. Has this rule changed?
3. If you made extra payments based on bad guidance from the Department of Education, what is your remedy?

How do I know if I get a SAVE subsidy? If you don’t want to do any math, this calculator will provide SAVE payments and monthly subsidy amounts.

If you want to do the math on your own, it is pretty simple. For each loan, multiply the balance by the interest rate. This number will give you the yearly interest charges on the loan. Divide that number by 12 to estimate the monthly interest charges for that loan. You get a subsidy by the amount your monthly interest charges exceed your monthly payment.

How Servicers Process Extra Payments for Borrowers who Receive the SAVE Interest Subsidy

If you look at the current version of the Department of Education’s page on SAVE, there isn’t much clarity about how extra payments are processed.

In theory, borrowers could use the subsidy to cover their unpaid interest, and then make an extra payment to lower their principal balance. The SAVE page doesn’t advise against making extra payments.

Unfortunately, the way it works isn’t very favorable to borrowers.

To find clarity on this situation. I spoke with someone from the ombudsman office at a loan servicer. Because the servicers are responsible for processing payments, they have to know how to apply extra payments and whether or not it will reduce the principal balance or the interest.

I was told that the SAVE subsidy is applied on a one month delay. When applying the subsidy, they compare payments against interest charges for the previous month. If the interest charges are greater, the borrower gets a subsidy in that amount.

This means that the borrowers who pay extra reduce their subsidy. It also means paying extra while recieving the SAVE subsidy is a big mistake.

Confusion About Subsidy Application and Strategy

When the SAVE Subsidy was first announced, it looked like borrowers were able to make extra payments and have 100% of the extra payments count toward principal.

The Department of Education recommended that borrowers pay extra to lower their balance, even if they qualify for $0 payments on SAVE:

The above language comes from an archived version of the SAVE announcement.

Notably, this language has been removed from the SAVE page.

Sherpa Thought: Between the servicer clarifications I’ve received and the language removal from studentaid.gov, it seems quite clear to me that extra payments on SAVE will first reduce the interest balance before being credited toward the principal balance.

It is possible that the Department of Education changes this policy, but for now, making extra payments if you recived the SAVE subsidy is a mistake.

Refunds for Previous Extra Payments

If you previously made extra payments in an attempt to have 100% of that extra payment count toward your principal balance, I think you should get a refund on that extra payment.

There isn’t currently a Department of Education policy that makes issuing refunds easily available, but a refund would fix things for borrowers who followed the guidance posted to studentaid.gov.

If you want to take action to get a refund on your previous extra payments, I’d suggest the following:

1. Ask your servicer for a refund. Explain that you followed the advice of the Department of Education. This request will likely be denied.
2. File a complaint with the Consumer Financial Protection Bureau. Once again, explain that you made extra payments to lower your principal balance and instead it reduced your subsidy. Filing a complaint with the CFPB is relatively easy, and if enough people do it, it makes a difference.
3. Contact your elected officials. All members of Congress have staff members dedicated to helping voters navigate federal programs and red tape. Correcting an issue for a borrower who was misled by the Department of Education is exactly the sort of thing they can help with.

If you’d like help with any of the above steps or you want to share your progress, please send me a quick email. Student loan repayment is far too complicated, and when the Department of Education gives bad advice, borrowers deserve to get it corrected.

Making the Most of the Interest Subsidy

If you do receive the interest subsidy, it is still possible to set aside “extra payments” to attack your student debt.

My suggestion is to open a dedicated high-yield savings account for this money. Each month you earn interest on the money you have set aside. Meanwhile, the subsidy covers some or all of the interest charges on your student loans. It is a rare win-win for borrowers.

Sherpa Transparency: This page once linked to and quoted the now-deleted language from the Department of Education.

Readers were told that even though their extra payments would count toward principal, they were advised not to follow the Department of Education guidance and to utilize the high-interest savings account instead.

Perks of Minimum Payments and Maximum Subsidy

Even if your savings account paid 0% interest, there are still some significant advantages to putting the extra payments into a savings account.

Build Up an Emergency Fund

When you have lots of student debt, building up an emergency fund may seem like a luxury, but in reality, it is a necessity.

Having money set aside for your federal loans doesn’t mean you must use it for your federal loans. For the borrowers who lack self-control, this can be a significant issue. For others, it is a great asset.

Putting money in savings rather than making a student loan payment means you can pay for an unexpected car repair or medical emergency. If that money was used to pay down your student debt, it is gone forever.

Ideally, you can earn money on interest and then make a large lump sum payment to knock out the loan. If the unexpected happens, you have some flexibility.

Keep the Door Open to Forgiveness

Typically, borrowers employ one of two strategies to eliminate their student debt. They can either make minimum payments and hope to get as much forgiven as possible, or they can aggressively repay their debt to spend as little as possible on interest.

By utilizing the interest subsidy and a high-yield savings account, borrowers can put money aside for aggressive repayment and make minimum payments toward forgiveness.

If your finances change and aggressive repayment becomes the obvious choice, you have money to attack the loan. If you realize that forgiveness is the ideal approach, you will be glad you didn’t make extra unnecessary payments on the loan.

Final Thoughts on the SAVE Interest Subsidy Confusion

When something like this happens, many people are quick to accuse the Department of Education or loan servicers of intentionally misleading borrowers.

I don’t think that is the case here.

At the time the Department of Education posted the now-deleted tip, the SAVE repayment plan was brand new and the exact process for handling the payments may not have been finalized.

That said, even if the error wasn’t malicious, it should still get corrected. All SAVE borrowers who made extra payments following the Department of Education tip should either receive a refund on their extra payment or have the principal balance credited accordingly.

The post SAVE Repayment Strategy: Extra Payments are a Mistake if you get the Interest Subsidy appeared first on The Student Loan Sherpa.

Because the fully implemented version of SAVE charges borrowers less for undergraduate loans, it is necessary to separate undergraduate debt from graduate debt. If you have a consolidated loan, please do your best to estimate which portion of the debt is graduate and which portion is undergraduate.

This calculator has been updated to include the 2024 federal poverty level guidelines, so it should be as accurate as possible.

Subsidy Calculator

What is the Purpose of the SAVE Subsidy?

Historically, many borrowers qualified for IDR plans with monthly payments lower than the monthly interest charges on their loans.

When this happened, IDR enrollment could mean that the balance grew considerably.

This made it harder for IDR borrowers to repay their debt, and it created the possibility of a larger tax bill if the debt was forgiven.

With the SAVE subsidy, borrowers don’t have to worry about their balances increasing.

How is the SAVE Subsidy Calculated?

This calculator estimates your SAVE payment and compares it to the expected monthly interest charges on your loans.

To understand the basics of the SAVE subsidy, check out this article that explains how it works.

Maximizing the Benefit

If you qualify for the subsidy, the Department of Education once suggested making extra payments to attack the principal balance. This would be a big mistake as extra payments reduce the subisdy amount that a borrower receives.

Additionally, borrowers who find ways to shelter income from IDR payments can further increase their subsidy. My favorite strategy is to set money aside in a retirement account.

The post SAVE Subsidy Calculator appeared first on The Student Loan Sherpa.