According to a report by CNBC on Monday, a spokesperson from the U.S. Department of Education indicated that borrowers enrolled in the SAVE Plan are expected to remain in administrative forbearance for at least six months. The SAVE Plan, the latest income-driven repayment initiative introduced by the Biden administration, has been stalled due to ongoing legal challenges.
Biden-Harris Administration Student Loan Policies
Since the end of pandemic relief programs, student loan policies introduced by the Biden-Harris administration have come under substantial scrutiny. The SAVE Plan was initially introduced as an option to replace the former REPAYE, revised-pay-as-you-earn, income-driven repayment (IDR) plan. This initiative was intended to roll out in two phases, with the first phase becoming available to borrowers once their loans resumed repayment following the pandemic relief period.
The Biden administration expedited elements of the second phase of the repayment plan, enabling some borrowers to qualify for forgiveness. However, just before the full implementation of phase 2, scheduled for July 1, 2024, two legal challenges hindered further progress on the plan.
Borrowers Enrolled in the SAVE Plan
Borrowers participating in the SAVE Plan are currently under an administrative forbearance with a 0% interest rate and no payment requirements. On Monday, we learned that the U.S. Department of Education expects this forbearance to last at least six months.
Time in the SAVE plan administrative forbearance will not immediately count for progress towards public service loan forgiveness (PSLF) or count a progress toward IDR forgiveness. While some borrowers may benefit from this time in forbearance, there are other borrowers who are ready, and able to make payments, and would prefer to make progress toward forgiveness. For those borrowers, it’s best to consider all options before moving on from the SAVE Plan.
Federal Student Loan Repayment Strategy
Borrowers may be wondering how to manage their student loan repayment. At one point, the online applications of the Department’s income-driven repayment plan, and consolidation applications were not available. The applications are now available and ready for use, but the experience may be not what a borrower would expect.
For example, the online income-driven repayment plan is now updated. Borrowers may notice their options to choose an IDR plan are far more limited than they used to be. For example, due to changes in regulations, PAYE (pay as you earn) plan and the ICR (income contingent repayment) plan are being phased out for most borrowers. Borrowers enrolled will be able to repay under the existing plans, and only borrowers with parent PLUS Loans will be able to repay using an ICR plan.
Borrowers will find that they still have the option to select the SAVE Plan for repayment. While they can enroll, if legal challenges are still pending, new enrollees will be placed under administrative forbearance.
Natural Disaster and SAVE Plan Considerations
Borrowers residing in areas impacted by federally declared natural disasters—such as wildfires, Hurricanes Helene and Milton, or tornadoes—are eligible for federal student loan relief during the disaster period. This relief is designed to assist those affected by circumstances beyond their control, enabling them to focus on more immediate concerns like food and shelter. Additionally, students enrolled in colleges affected by these federally declared disasters may also qualify for this relief.
If a federal student loan borrower is enrolled in the SAVE plan and qualifies for relief due to a natural disaster, their loans are already in a postponement status. The administrative forbearance provided by the SAVE Plan does not automatically count toward qualifying payments for PSLF. However, months spent in a natural disaster forbearance do count as qualifying payments if a borrower is meeting all other eligibility criteria. Borrowers living in areas affected by a federally declared natural disaster, should contact their federal student loan servicer to determine the best option for their situation. While in a natural disaster forbearance, interest will still accrue on a federal student loan. Natural disaster forbearance is granted for 90 days, with the option to request an extension based on the borrower’s situation.
SAVE Plan Updates
The status of the SAVE Plan is a developing story. While the plan faces challenges, several repayment options are available through federal student loan programs to assist borrowers in effectively managing their repayment strategies. Student loan repayment is a very real reality for many households, and it does require a household to incorporate the repayment of that debt into their household budget.