The Department of Education has announced that roughly 3 million borrowers will have their student loan payments paused after federal courts blocked parts of the SAVE (Saving on a Valuable Education) repayment plan. President Joe Biden launched this plan last year to lower monthly bills for borrowers. Two groups of Republican-led states filed lawsuits challenging the plan, leading to temporary injunctions issued by Missouri and Kansas judges. These injunctions halt portions of the plan that would have lowered payments by as much as half for some borrowers and provided a faster route to debt forgiveness.
Currently, all 8 million borrowers enrolled in SAVE will not need to make a payment in July, with roughly 3 million of them placed into forbearance. During this time, payments will not be required and interest will not accrue. However, borrowers enrolled in the Public Service Loan Forgiveness program will not receive credit toward debt relief as they did during the Covid-19 pandemic. The Department of Education will communicate updates to borrowers via email in the coming days.
Under SAVE, borrowers with lower incomes can have their monthly payments recalculated based on adjusted gross income and family size, with payments possibly as low as $0 for those earning $30,000 or less annually. Borrowers may be eligible for debt relief in a shorter time under SAVE compared to other income-driven plans. The plan also prevents balances from growing due to interest when the monthly payment is small. Borrowers will not have access to online applications for income-driven plans, including SAVE, for the next four to six weeks while the Department of Education updates its systems in response to the court-ordered injunctions.
The SAVE plan offers more generous terms than existing income-driven plans, which typically calculate discretionary income as the difference between income and 150% of the poverty level. Under SAVE, discretionary income is calculated as the difference between adjusted gross income and 225% of the poverty level. Before the injunctions, borrowers were expecting their payments to be cut by as much as half. During this time of uncertainty regarding student loan payments, borrowers are advised to check the Department of Education’s website for updates.
