Federal student loan borrowers are temporarily unable to apply to income-driven repayment plans, a decades-old safety net that ties their monthly loan payment size to household income levels, as the U.S. Education Department reviews a recent federal court ruling. The department closed applications to the repayment plans last week after the U.S. Court of Appeals for the Eighth Circuit upheld and expanded a temporary suspension of the Saving on a Valuable Education (SAVE) plan. The plan, a centerpiece of the Biden administration’s policy agenda with eight million enrolled borrowers, generated lower payments than previous plans. The SAVE plan has been in legal limbo ever since, and participants’ payments have been on hold since last summer. But last week, applications to the three other income-driven plans were also taken down, effectively shutting the door to more affordable plans for borrowers in financial distress, and eliminating a crucial component needed to participate in the Public Service Loan Forgiveness program – at least temporarily.
The department is reviewing repayment applications to conform with the Eighth Circuit’s ruling. Borrowers should update their information on StudentAid.gov, including on a page about court actions related to SAVE. The situation is fluid, so the Education Department will update as circumstances change.
The U.S. Court of Appeals for the Eighth Circuit upheld a temporary ban on a portion of the SAVE plan issued by the U.S. District Court for the Eastern District of Missouri. The appeals court sent the case back to the District Court with instructions to expand the preliminary injunction to the entire SAVE rule (though other legal rulings had already temporarily suspended the program). But the appellate court didn’t stop there: The judges also said the secretary of the U.S. Department of Education lacked the explicit authority to grant loan forgiveness in any Income-Contingent Repayment plans, even though it has been done for nearly 30 years.
Borrowers can temporarily pause payments through deferments or forbearance, but those programs have different eligibility requirements and consequences, largely due to the way interest is treated.
If you’re in a plan like SAVE that may close, you’ll be grandfathered in, but new borrowers may be moved to other plans.
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