How SAVE Plan Pause Affects Student Loan Borrowers Seeking Public Service Forgiveness

KEY TAKEAWAYS

• A federal appeals court recently blocked the income-driven repayment plan, Saving on a Valuable Education (SAVE), forcing millions into forbearance and preventing them from working toward loan forgiveness.
• Borrowers who qualify for the Public Service Loan Forgiveness (PSLF) plan can “buy back” the payments they missed during forbearance to reach forgiveness.
• Some borrowers may want a different income-drive repayment plan if they are unable to buy back the time while in forbearance.

Student loan borrowers in public service who have been working toward forgiveness may have to do some maneuvering to reach the finish line amid two legal cases complicating repayment.

The Department of Education put loans held by Public Service Loan Forgiveness (PSLF) borrowers enrolled in the newest income-driven repayment (IDR) plan into forbearance this month. The PSLF program offers complete loan forgiveness to borrowers who worked full-time for a public service organization and made 120 qualifying student loan payments.

Many of those qualifying payments were being made under the Saving on a Valuable Education (SAVE) plan. The plan was designed to be more generous for borrowers by making payments lower and forgiveness easier to achieve. It’s also at the center of two court cases, resulting in a back-and-forth that eventually ended in a judge blocking the entire plan until the case can be decided.

This has left PSLF borrowers nearing forgiveness frustrated.

“So I switched to SAVE plan to make payments more affordable and now I’m forced into forbearance that won’t count for PSLF, which I need to pay off my loans,” one borrower posted on X. “How is this fair?”

In the past week, the Education Department has detailed options for borrowers in this situation. While in forbearance, borrowers won’t receive credit toward their loan forgiveness. However, there are other ways that borrowers can make this time count.

Borrowers Can “Buy Back” The Months

If a SAVE plan borrower is registered under the PSLF plan and will reach 120 months of payments while in forbearance, they can “buy back” months of PSLF credit.

First, you must prove you are a borrower with qualifying employment for 10 years and an outstanding balance. After submitting a request, you will receive a buyback agreement with the amount not paid while in forbearance. You will then need to pay that amount in 90 days in order to receive forgiveness. Borrowers with $0 monthly payments should not have to pay anything back. 

“It’s driven by borrowers. They’re going to have to be the ones to start this process,” said Megan Walter, senior policy analyst for the National Association of Student Financial Aid Administrators. “They’re going to have to be the ones who took good notes about the months they missed.”

“So I don’t think it’s going to be a very easy process, but it is a process for borrowers who don’t want to try to transfer into another IDR program right now,” she said.

You Can (Possibly) Move to Another Plan

The Department of Education said borrowers could also enroll in another income-driven repayment plan like SAVE’s predecessor, Revised Pay As You Earn (REPAYE). However, that may be a difficult, if not impossible, task.

Servicers have temporarily closed down online applications for income-driven repayment plans until the department can ensure they are processed correctly. There is no indication of when those applications will be available.

There’s also a question of whether the REPAYE plan even still exists. When SAVE was rolled out in August, REPAYE borrowers were automatically enrolled in the new plan.

Persis Yu, deputy executive director and managing counsel of the Student Borrower Protection Center, said recent changes to servicing platforms may have made it difficult to calculate payments under the REPAYE plan.

“Legally, it’s really ambiguous about whether it exists,” Yu said in an interview last week. “But functionally, it certainly doesn’t exist.” 

Or, You Can Wait It Out

Walter also suggests waiting a month or two to see which way the litigation is going.

“We just need to be prepared to be back into repayment at any point, at maybe a higher amount than you were expecting,” Walter said. “It’s unprecedented times, again and again and again.”

In the meantime, document every month you’re not paying and be prepared to continue with repayment. Borrowers should also be aware of what their payments would be like if the SAVE plan is struck down or what might happen when a new administration takes its place in the White House.

Read the original article on Investopedia.