Student loan borrowers who anticipated lower monthly payments under the new Saving on a Valuable Education (SAVE) plan experienced disappointment when, on February 18, 2024, the U.S. appeals court blocked the initiative. This interruption significantly affects millions of borrowers, forcing them to switch to alternative repayment plans, which could lead to increased monthly payments, according to higher education expert Mark Kantrowitz.
"Borrowers who were on SAVE will have to pay more on their federal student loans, sometimes seeing their monthly obligations double or triple," Kantrowitz explained, noting the overall impact of the recent legal decision. The appeals court's ruling not only halted the SAVE plan but also eliminated the possibility for student loan forgiveness under various income-driven repayment options.
The Biden administration rolled out the SAVE program over the summer of 2023, positioned as "the most affordable student loan plan ever." This ambitious claim quickly drew opposition from Republican-led states, who initiated lawsuits against the program, arguing it represented Biden's attempt to bypass the Supreme Court's disallowance of his sweeping debt cancellation efforts.
Central to these legal challenges were provisions of the SAVE program promising lower monthly payments and expedited debt erasure for those with minimal balances. Under income-driven repayment plans, borrowers' monthly bills are calculated based on their financial circumstances, and previous guidelines allowed for eventual forgiveness after consistent payments over several years.
On February 18, 2024, the 8th U.S. Circuit Court of Appeals ruled against the Department of Education, siding with the seven states challenging the SAVE plan. Amid these court proceedings, many borrowers on SAVE had their account charges paused under interest-free forbearance—a temporary reprieve expected to last until December 2024. Kantrowitz warned, "This pause will likely end sooner under the Trump administration, potentially within weeks or months."
Given the court's decision, borrowers must actively explore other repayment strategies. Experts recommend assessing current options immediately. The ruling has also impacted many income-driven repayment plans, such as the Revised Pay-As-You-Earn (REPAYE) program, with only the Income-Based Repayment Plan (IBR) remaining as one leading to potential debt cancellation.
For public service workers, the Public Service Loan Forgiveness (PSLF) program still offers viable pathways for debt elimination, enabling individuals to erase their debt after ten years under certain repayment conditions.
Betsy Mayotte, president of The Institute of Student Loan Advisors, stressed the interconnectedness of repayment plans for achieving forgiveness. "If someone has been on PAYE for eight years and now switches to IBR, they will still have eight years under their belt toward IBR forgiveness," she elaborated.
Numerous online tools can help borrowers calculate monthly payments under various plans, with the Standard Repayment Plan being recommended for those who can afford mortgage-like fixed payments for ten years.
Should affordability become difficult, borrowers are encouraged first to consult for deferment options, which can provide pausing payments without accruing interest. This is particularly relevant for those facing unemployment or other financial hardships. Deferments are available for several scenarios, including military service or specific treatments, such as cancer.
If deferment is not feasible, borrowers might seek forbearance, temporarily suspending payments for up to three years. It’s important to note, though, interest often accrues during this period, potentially leading to larger post-forbearance bills.
Adding to the complexity surrounding student loans, the Federal Student Aid (FSA) office, responsible for managing over $2 trillion of federal student loans and supporting millions of students, is also facing significant staff reductions following buyouts initiated under the Trump administration. An internal document reveals 124 employees from the FSA chose to participate in the so-called "deferred resignation program," reducing the office staff by approximately ten percent.
This downsizing includes key personnel, such as those within the borrower defense division, which helps students misled or defrauded by educational institutions, as well as members from the ombudsman’s office, technical staff, and investigators ensuring compliance with federal laws governing financial aid. David Sheridan, director emeritus of financial aid at Columbia University, highlighted the ramifications of such staffing reductions, asserting, "It’s not just manpower that's disappearing, but institutional memory."
Reports indicate the buyouts might have ripple effects on the agency's capacity to support students seeking financial aid, raising red flags among higher education advocates. Bryce McKibben of Temple University’s Hope Center for Student Basic Needs noted, "This is not the time to be reducing staffing for the Department of Education," emphasizing the challenges faced by students seeking assistance.
Regarding the staffing reductions, the Education Department has yet to publicly comment on the extent of the impact resulting from the buyouts.
The combined effects of legal setbacks on loan repayment plans and reduced employee capacities at the Federal Student Aid office present considerable challenges for student loan borrowers just as they anticipated returning to standard payment processes. Moving forward, both current and prospective borrowers will need to navigate through uncertain terrain as they adjust to new realities guided by rapidly shifting policies on student debt management.