As the chaos surrounding student loans continues to swirl, borrowers are left wondering how to navigate the ever-changing landscape. With ongoing litigation, shifting policies, and a Department of Education seemingly caught in limbo, staying informed has never been more crucial. In this month’s newsletter, we’ll dive into the latest updates on the SAVE plan, PSLF, and Biden’s Plan B for loan forgiveness. Whether you’re pursuing loan forgiveness or simply trying to make sense of the current situation, we’re here to guide you every step of the way.
SAVE Lawsuit Update
The SAVE plan continues to take a beating in the courts with no resolution in sight. The 8th Circuit Court of Appeals, which already issued a temporary stay blocking the plan on July 18th, just “upgraded” that order to a temporary injunction. This latest move implies the court sees some merit in the lawsuit to cancel the SAVE plan, and thinks it has a decent chance of succeeding.
One positive development, however, is the court also stated any cancellation of the plan would NOT result in previously forgiven loans being reconstituted. Meanwhile, SCOTUS still hasn’t made any comments as to whether or not they will consider the case or take any short-term action. We’re pretty confident they will have to get involved eventually, and the Department of Education certainly knows this as well. This is why we haven’t seen the DOE take more decisive action on repayment plans or provide better solutions. They did release some guidance, however. Be sure to follow our ongoing coverage of this rapidly developing situation here.
Important Action Items and Considerations
With the SAVE plan being partially rolled out over a year ago, and the “final rule” for SAVE being published even longer, this injunction forces us to pause and consider the less obvious impacts of the final rule being blocked.
First, the Income-Contingent Repayment (ICR) plan and Pay As You Earn (PAYE) plan are still available to borrowers who wish to continue making payments. When/if the final rule for SAVE goes into effect, however, these two plans are off the table. That said, the online payment plan applications are still offline. And while the Department of Education is telling borrowers they can submit PDF applications for any plan (including SAVE), their own page warns that application processing is currently paused and will likely face long delays. Therefore, our advice for most borrowers who are impacted by the SAVE lawsuit is to continue holding fast a bit longer as this develops.
Next, those who already have PSLF credit should be extremely careful if you are considering Federal loan consolidation. While the final rule allows you to get weighted average PSLF credit for whichever loans you consolidate, the old/current rules state that your PSLF “clock” will reset back to zero if you consolidate.
For anyone else who is consolidating during this time and selected the SAVE plan, please note that your loans will likely be put into a level payment plan once that consolidation is processed. This plan DOES NOT count towards PSLF or the buyback program. So, you may need to contact your servicer to put those loans into forbearance or another repayment plan.
Also, for 2024 graduates who were about to enter repayment and selected “I have no income” on your Income-Driven Repayment (IDR) application, you may be prompted to submit another application sometime soon. You can’t say you currently have no income if you’ve started a new job. So, you might want to get a tax return filed for 2023 which verifies you had no income for last year. Yes, you are still allowed to file this late in the year if you were not required to file at all.
The PSLF Buyback Program
For those of you who are stressing about losing your PSLF credit during this forbearance period, FEAR NOT! The new PSLF Buyback Program is going to be your lifeline. This program allows you to make payments on the back end of PSLF service for any periods you might have been stuck in the limbo of forbearance. It’s almost as if the Department of Education saw these lawsuits coming! The buyback program considers what your IDR payments were (or should have been), for the exact time periods you need credit for. It is not based on your current income at the time you apply for it.
That being said, you can only utilize this tool AFTER you’ve completed and certified your 120 months of PSLF employment. It may take you a bit longer to get PSLF this way, but it should not cost you any extra money. We strongly suggest you open up a dedicated savings account right now, nickname it your PSLF Buyback account, and deposit your monthly SAVE payment equivalent there until all of this litigation is settled.
Biden’s Loan Forgiveness Plan B
Biden’s “Plan B” for loan forgiveness is back in the news. Roughly 25M borrowers received emails in the last two weeks which highlighted the groups who would be eligible for forgiveness and instructed borrowers they may opt out before August 30th. Unfortunately, the details of the plan have not been finalized, nor has the final effective date been announced.
How can borrowers be expected to opt out without this critical information? We’re not sure to be honest. But here is one consideration: with the exception of PSLF, many states tax loan forgiveness. If you’re pursuing PSLF, but get partial loan forgiveness under Plan B, you may end up owing taxes without receiving any real benefit. Having a small portion of your loan portfolio forgiven this year will not actually save you any money if you ultimately achieve PSLF. Aside from this, or possibly changing your debt-to-income dynamics for income driven payment plans, we see no practical reason to opt out. Check out our ongoing summary and coverage of Plan B, including something noticeably absent from this latest communication.
PSLF Tracking Improvements
Finally, we’re happy to let you know that PSLF processing has resumed. The Department of Education has finished its PSLF migration from Mohela to studentaid.gov, bringing the entire process in-house. Borrowers no longer need to pick a specific servicer in order to pursue PSLF, nor do they need to log in to their servicer’s website to monitor their progress. In addition to the PSLF help tool, participants can track the progress of their employment certification forms, qualified payments, and qualified employment all through studentaid.gov. Get the full details here.
We’re here to help!
In these turbulent times, understanding the nuances of student loan policies is critical to making informed decisions. Even with the uncertain outcomes of these litigations we are still able to provide guidance to borrowers by showing the impact of multiple payments plans so you can be prepared no matter what happens. Click here to learn more and schedule your personal student loan consultation.
Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.
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