In the world of student loans, there’s a lot of uncertainty, especially with the ongoing legal challenges to the SAVE plan and the incoming Trump administration.
While many borrowers fear that the SAVE lawsuit could mean the collapse of many income-driven repayment (IDR) plans, there’s a scenario that hasn’t received as much attention: the return of REPAYE or a REPAYE-like plan. This could end up being a relatively positive outcome compared to some of the gloomier predictions floating around.
Let’s take a closer look at why REPAYE might make a comeback and how it could help many borrowers.
The Fear: A World Without IDR Plans Other Than IBR
One of the major concerns surrounding the SAVE lawsuit is the possibility that a court decision could lead to the elimination of all IDR plans created under the ICR statute, including the longstanding Income-Contingent Repayment (ICR) and the Pay As You Earn (PAYE) plan.
The noteworthy plan that was not created under this authority is IBR—there is a separate statute for IBR.
Understandably, the idea of losing access to most IDR options is alarming for borrowers who rely on these plans to make their student loans manageable. However, the fear that we could lose all ICR statute based plans is likely overblown.
There are three major reasons why I don’t see that happening:
- Administrative Procedure Act (APA): The APA makes it difficult to overturn longstanding regulations, especially those that have been in place for six years or more. The stability provided by the APA offers significant protection to IDR plans like ICR, PAYE, and REPAYE.
- Master Promissory Note (MPN): The MPN is the contract between borrowers and the federal government, outlining the repayment options available. Millions of borrowers have signed an MPN that included REPAYE language. Changing these options would potentially invite significant borrower lawsuits. Even if your MPN didn’t include SAVE language, it would be very difficult practically for the government to limit eligibility to this plan based on the exact language of individual MPNs.
- SAVE Lawsuit Remedies Sought: The lawsuits challenging SAVE target specific provisions of the regulations rather than the entirety of the IDR system. This means that even if parts of SAVE are permanently blocked, others could survive.
REPAYE: The Forgotten Backup Plan
In the likely event that portions of SAVE are struck down, we could see a rollback to something that looks like REPAYE, which was the foundation for many of the improvements introduced by SAVE. Remember, SAVE was not a repayment plan created from scratch—it was a series of adjustments to REPAYE and a renaming of REPAYE.
Payments on REPAYE only required borrowers to pay 10% of their discretionary income. For borrowers whose loans are too old to qualify for PAYE or IBR for New Borrowers, REPAYE represented significant savings. If REPAYE doesn’t return, borrowers in this category will either have to pay 15% on the original IBR plan or 20% on the ICR plan.
For many borrowers, a payment based on 10% of discretionary income—rather than 15% or more—represents a massive savings each month.
The Interest Subsidy: A Less Generous Version Could Survive
Under SAVE, many borrowers have enjoyed an interest subsidy that prevents their balances from growing while on an IDR plan.
If SAVE were overturned and REPAYE returned, borrowers would still have access to some interest relief, albeit less generous than under SAVE. REPAYE’s interest subsidy covered 50% of the unpaid interest, which, while not as helpful as SAVE’s full coverage, still provided valuable assistance.
While REPAYE’s subsidy would not eliminate interest entirely, it would still help borrowers stay afloat and help prevent balances spiral out of control.
The Exception: Married Borrowers Filing Separately
One group that might face challenges if REPAYE returns is married borrowers. Under SAVE, these borrowers have the option to exclude their spouse’s income from their repayment calculation by filing taxes separately, making SAVE a particularly attractive option for some couples. The lawsuit challenging SAVE didn’t specifically target this aspect, so it’s possible that this benefit could survive even if SAVE is overturned.
That said, there’s still a risk here. If the new administration decides to unwind parts of SAVE, this provision could be on the chopping block. Borrowers in this situation should stay alert for any policy changes and be prepared for potential adjustments to their repayment strategy. They might also want to be ready to reach out to their elected officials should this change be seriously considered.
A Silver Lining in Uncertain Times
It’s easy to get caught up in the worst-case scenarios, but it’s important to remember that there are still viable paths forward for borrowers, even if SAVE doesn’t survive the current legal challenges. The potential return of REPAYE may not be a best-case scenario, but it could be a decent outcome for many.
REPAYE could provide a stable, predictable repayment option—one that, while not as generous as SAVE, still offers significant benefits, especially compared to older plans like IBR and ICR.
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It’s difficult to make plans when so much is in the air. I’ve been saving what would be my student loan payments in a savings account for the PSLF buyback but I’m just not even looking at my accounts. I won’t bother unless there is a change to my status. I’m also currently one of the married borrowers who is benefiting from SAVE’s tax benefits for filing separately. Not asking for tax advice, I’m trying to figure out if we should file together next year in anticipation that SAVE won’t survive. like I said: it’s hard when so much is unclear. My PSLF was supposed to end next December and I’m worried it won’t.
I couldn’t agree with your first sentence more. I’d go as far as saying It’s unfairly difficult to make plans when so much is in the air.
There really isn’t much information available on the SAVE benefit from filing seperately right now. IBR and PAYE have a similar option, but REPAYE didn’t in the past. I can’t offer much more insight on that front other than what is in the article.
As for your tax planning, the one thought I would add is that we are likely to know more in April. Additionally, its possible to both delay filing your taxes with an extension and to amend a return. If you are still waiting for clarity, you might want to discuss these options with your tax preparer.
Now that we are in December, I’d encourage you to submit another employer certification, get your 10 years on file, and start the buyback process. Hopefully, you can get your loans forgiven before you have to make a tax decision.
Thank you Michael for your analysis. It is my hope that REPAYE comes back and for now I am sitting tight to see what happens. Not worth spending each day thinking the worse. I found making back-up plans, regardless of whether they are the ideal choice, helps relieve some of my stress. Not knowing can certainly create stress but not much I can do about it.
I think that is an excellent attitude to have about this whole mess. Borrowers have gotten a raw deal in many ways, but obsessing/stressing about it doesn’t make things any better. I like your approach.
Thank you Michael. You are also part of that plan too as you provide a much needed service and knowing it is there does remove stress. Expert advise and back-up plans are my sanity.