A federal court recently blocked the Department of Education’s newest and most affordable repayment plan, Saving on a Valuable Education (SAVE). This ruling prevents the Department of Education from administering all aspects of the SAVE plan. You may be wondering if this ruling has an impact on your student loans. We’re breaking down the recent court ruling and how it affects student loan borrowers.

How did we get here?

The Department of Education introduced the SAVE plan in 2023 to replace the Revised Pay As You Earn (REPAYE) plan, and it quickly gained popularity. Over 8 million borrowers enrolled in this plan, which offers several appealing benefits:

• Payments based on 10% of discretionary income to make monthly payments more manageable
• An interest subsidy benefit that prevents your balance from growing
• The possibility of loan forgiveness after 20 or 25 years

The SAVE plan is also a qualifying repayment plan for the Public Service Loan Forgiveness (PSLF) program.

The Department of Education planned to implement additional enhancements to the SAVE plan starting in July 2024. The enhancements include even lower payments for undergraduate loans and an accelerated forgiveness timeline for borrowers with smaller balances. However, these changes faced legal challenges, leading to the current situation where the SAVE plan is on hold.

How does the SAVE plan court ruling affect you?

With the SAVE plan blocked, any student loans currently enrolled in SAVE have been automatically placed in forbearance. If you’re enrolled in a different income-driven repayment (IDR) plan, such as PAYE, IBR or ICR, your loans are not affected and will continue under your existing plan.

During this forbearance period, payments are not required, and interest will not accrue.

While loans are in forbearance, progress towards loan forgiveness is essentially on hold. Even if you make payments during this forbearance, those payments will not count towards Public Service Loan Forgiveness (PSLF) or Income-Driven Loan Forgiveness..

If you’re working toward PSLF

PSLF requires 120 qualifying payments while working full-time for an eligible non-profit or government employer. If you’re aiming for PSLF, this forbearance period will pause your progress. You have a few options:

1. Take no action
   If you decide not to take any action, your loans will remain in forbearance until the legal issues are resolved. You won’t earn PSLF credit during this time, but you can benefit from the pause in payments.
2. Buy back these missed months at the end of the PSLF program
   Once you reach 120 qualifying months of eligible employment, you can request to “buy back” the months missed during forbearance. This involves paying the amount you would have paid under an income-driven plan for those months in forbearance.

   If you want to qualify for forgiveness as soon as you’ve reached 120 qualifying months of employment, the buyback option can help you reach that goal.

3. Switch to a different repayment plan
   If you want to continue to make progress toward PSLF, you can apply for a different IDR plan. Keep in mind that payments on other IDR plans are likely higher than payments on SAVE, potentially reducing your overall loan forgiveness.

   Also, the Department of Education confirmed that processing of IDR applications is currently paused, so expect delays. In the meantime, your loans will remain in forbearance.

If you’re working toward Income-Driven Loan Forgiveness

For those on the SAVE plan, the forbearance might delay your progress towards income-driven loan forgiveness. However, this forgiveness takes 20 or 25 years to qualify, so the impact is minimal for most borrowers.

If SAVE offers the most affordable repayment option for you, staying on the SAVE plan during this forbearance is likely your best choice. You’ll enjoy a payment break without worrying about balance increases, as interest pauses.

While the Department of Education works to reinstate the SAVE plan, you can explore other repayment options as a “back up” plan in case SAVE is ultimately unavailable. You can use the Department’s loan simulator to estimate your payments on alternative plans.

Side effects of the SAVE plan block

Even if you’re not on the SAVE plan, there are some broader implications.

The Department of Education has temporarily removed the online Direct Consolidation Loan application and the online Income-Driven Repayment Plan request forms. If you need to consolidate your loans or enroll in an IDR plan, you’ll need to submit one of these PDF applications instead.

If you have any questions about what this recent ruling means for your loans, please reach out to a student loan coach at Tuition.io today. You can request an email or phone coaching session from the Student Loan Coaching tile on your Tuition.io dashboard.