Since the election, one of the most common questions I’ve received is about what borrowers on the SAVE forbearance should do next. While it’s a straightforward question, the answer isn’t simple. Each borrower’s situation is unique, and there are many factors to consider.
Today, let’s walk through the analysis that goes into making this decision and explore the reasons why a borrower might choose to stay on SAVE or switch to another plan.
The SAVE Forbearance Problem
With Donald Trump winning the election, the SAVE repayment plan as we know it is likely coming to an end. The plan is struggling in the court system, and it is unlikely that the new administration will work to keep it in place.
With the SAVE litigation forbearance likely ending in the coming months, many borrowers want to know the next steps. The problem is that we don’t know what options will be available moving forward. IBR has a high likelihood of being available indefinitely, while ICR and PAYE could be returning before Biden leaves office. REPAYE might also reappear.
The biggest downside with the SAVE forbearance is that the time spent in this payment pause does not count toward student loan forgiveness. Initially, I hoped this rule might change retroactively, but the new administration is unlikely to take that approach. For many borrowers, switching to a plan that counts toward forgiveness could make the most sense.
What protections do borrowers have in place? Learn how Trump’s election could impact various federal repayment plans and forgiveness programs.
The Case for Staying on the SAVE Forbearance
For some borrowers, staying on SAVE might still make sense despite the uncertainty. Here’s why:
- 0% Interest: While the forbearance is active, borrowers enjoy a 0% interest rate on their loans. This is a considerable savings and it means the forbearance is truly a student loan pause.
- Unknown Resolution and Timing: We don’t know when the SAVE forbearance will end or what repayment plans will be available at that time. Waiting provides time to make a decision when more information is available.
- Payment Break: The payment break allows borrowers to save up for whatever comes next or build up an emergency fund.
- PSLF Buyback Potential: The buyback program could still benefit borrowers working toward Public Service Loan Forgiveness (PSLF).
The election is a big change and there is certainly temptation to “take action” in order to protect yourself moving forward. Being proactive might feel good, but in many cases, being patient might be the prudent approach.
Switching to IBR Now
One of the most stable options available is the Income-Based Repayment (IBR) plan. Here are some key considerations:
- Stability: IBR is statutory law and is expected to remain a reliable repayment option moving forward. This makes it a good choice for borrowers looking for long-term stability.
- Forgiveness Progress: By switching to IBR, borrowers can begin making qualifying payments toward loan forgiveness immediately.
- Tax-Free Forgiveness Window: Enrolling in IBR now may allow borrowers to receive forgiveness before taxes on forgiven balances return in 2026, potentially saving thousands of dollars in tax liabilities.
Drawbacks of Switching to IBR
Switching to IBR has some drawbacks that borrowers should be aware of:
- Higher Costs: For many borrowers, IBR can be more expensive than SAVE, particularly for those who don’t qualify for the more favorable terms of IBR for New Borrowers (2014 version). The older version of IBR requires borrowers to pay 15% of their discretionary income, compared to SAVE’s 10%. This difference alone can lead to significantly larger monthly payments.
- Discretionary Income Definition Change: IBR defines discretionary income as the amount above 150% of the federal poverty level, whereas SAVE uses a more generous 225% of the federal poverty level.
- Eligibility Limitations: IBR comes with an income cap, meaning not everyone will qualify for this plan. Borrowers whose income exceeds the cap may be ineligible. These borrowers could be better off waiting to see what happens with SAVE/REPAYE.
- Income Recertification: Many borrowers have not recertified their income since before the pandemic. A new recertification could result in a significant payment increase if income has risen during that time.
Waiting for ICR or PAYE to Return
For borrowers not eligible for IBR but eligible for PAYE, waiting might be a smart move, as PAYE could soon become available for new enrollments again.
Income-Contingent Repayment (ICR) is also worth considering. It’s a good option for borrowers with higher incomes and smaller balances who are close to reaching forgiveness. ICR doesn’t get much attention, but it can work well in specific scenarios.
What we know for now is that the Biden administration plans to bring both of these plans back. Additionally, with SAVE unlikely to survive, bringing back both of these plans seems logical, and potentially legally required.
Holding Out Hope for REPAYE
I’m not ruling out the possibility that REPAYE could return.
There is also the potential for a REPAYE/SAVE hybrid plan, which might incorporate some changes from SAVE—such as the 10% discretionary income payments—but eliminate the earlier forgiveness and 5% discretionary income payments that are currently being litigated. This could end up being a compromise solution in the near future.
A REPAYE/SAVE hybrid is probably the optmistic outcome for borrowers, but I think it is a somewhat realistic outcome as well.
Final Thoughts: Two Things to Keep in Mind
If you decide to switch out of the SAVE forbearance, remember that processing times for IDR enrollments are still quite slow. Moving to IBR now and then switching to another plan in a few months might not save much time overall.
Above all, it’s important not to assume the worst. Borrowers’ fears about what could happen to their repayment options are justified, but assuming that all forgiveness and IDR plans will be eliminated is premature. The ideal strategy is to stay flexible and be ready to adjust as more information becomes available.
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Thanks for this post, really helps me feel better about doing nothing. Any idea how the payments will be calculated for PSLF buyback? i.e. will they use this years tax returns? (I have had a big jump in income but have not recertified since before the pandemic when i was a medical resident with very low income).
What repayment plan will they use to calculate the buyback payments? I was on PAYE before and got moved to SAVE, will they use one of those or will they use the standard repayment? According to the info on FSA it looks like they will use my last payments on PAYE?
“If you were on an IDR plan immediately before or after the months you’re buying back:
If the deferment or forbearance was less than a year in length, we’ll use the lower of the two monthly IDR payments for the months before or after the time in deferment or forbearance.”
Hi Ben, I think you’ve mostly answered your own question. You found exactly the relevant section from studentaid.
My understanding is that they will use the IDR payment for whatever plan you were on, meaning if your were on PAYE, they will use that or if it was IBR, they will use that.
Where it gets tricky is the fact that they cannot use SAVE payments because of the injuction. They may go back and use prior REPAYE or PAYE payments. Its conceviable they ask for a tax return from during that period, but I’d be surprised if they go that route just because requesting all of those tax returns would be very time consuming and really slow down the process.
That you Michael for your article. I know organizations like MOHELA aren’t even processing IDR/IBR applications at this time. For myself, even if I wanted to leave the SAVE plan, I can’t due to MOHELA’s hold but I personally don’t plan on switching to IBR until after my taxes. My hope is that we will have a better idea of what options will be available but I want to file married but separate anyways to reduce the payment burden. Thank you for the good information.
Thank you very much, Michael, for all the valuable information you send to us!
Today, I was getting information about, analyzing and debating PAYE vs. IBR, and I finally decided to re-certify into PAYE. I tried to stay almost until the last minute before making a move. Maybe, as you said, waiting could be good sometimes. I hope I did the right thing!
In my humble opinion, there is a lot of uncertainty, but we need to bear with the situation, stay informed, be patient and keep our spirits positive. I refuse to think that this situation will cause a massive damage, as in a doomsday scenario. I do believe that there has to be a fairly healthy solution for this complicated issue. And I am not making any political statement or so here!. Please, consider me a non-political person!. At least, I would try to be positive and keep my mental health on check.
Thank you!