The ongoing litigation surrounding the SAVE (Saving on a Valuable Education) plan has caused significant confusion and concern among federal borrowers. The recent decision by the Eighth Circuit to block all aspects of SAVE was an unexpected and devastating setback for both borrowers and the Department of Education.
To address the fallout from the litigation, the Department of Education placed all borrowers enrolled in SAVE into a forbearance and suspended interest charges. While this move was a commendable first step to mitigate the damage caused by the lawsuit, it is not enough.
Limitations of the Current Forbearance
One of the critical issues with the lawsuit forbearance is that the payment pause time will not count towards Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) forgiveness. For borrowers on a tight PSLF timeline or those hoping to achieve IDR forgiveness before the tax on forgiveness returns in 2026, the forbearance poses a significant problem. Although there are several options available for borrowers to work around this issue, each comes with considerable drawbacks.
To better support borrowers impacted by the SAVE litigation, the Department of Education should reinstate the Revised Pay As You Earn (REPAYE) plan.
Why Isn’t REPAYE Available?
As part of the SAVE regulations, the SAVE plan replaced REPAYE. Consequently, the Department of Education and loan servicer systems no longer have REPAYE in their systems.
At the time SAVE was introduced, it seemed like a logical step, as SAVE was objectively better than REPAYE in many respects.
How the Return of REPAYE Could Help
Reinstating REPAYE could provide several benefits for borrowers:
- Progress Toward Forgiveness: Borrowers could start making progress toward forgiveness if they choose not to accept the forbearance. This could be especially helpful for those who are close to achieving forgiveness.
- Avoiding Interest Capitalization: Currently, many borrowers may have to consider switching to the Income-Based Repayment (IBR) plan. However, switching to and from the IBR plan causes statutorily mandated interest capitalization, which would be a significant setback for those impacted.
Potential Long-Term Benefits of REPAYE
Reintroducing REPAYE may not be just a temporary solution.
If the SAVE plan ultimately loses in court, the elimination of REPAYE under SAVE regulations will be reversed, making REPAYE the long-term plan that many borrowers need.
Legal Argument/Requirement for Bringing Back REPAYE
The Eighth Circuit’s injunction on all of the SAVE rules includes the regulations that eliminated the REPAYE plan. Technically, the SAVE regulations altered the rules of REPAYE and renamed it SAVE. The injunction nullifies those changes and the name change. Therefore, by not making REPAYE available, the Department of Education may arguably be violating this ruling.
Suing the government is notoriously complicated, but a failure to make REPAYE available to borrowers opens the door to potential borrower lawsuits.
Final Thought
While the forbearance and interest suspension provide relief for many borrowers, those who miss out on PSLF or have their IDR forgiveness taxed are significantly worse off. To fully address the issues caused by the SAVE litigation, the Department of Education should promptly reinstate the REPAYE plan.
This is exactly where it’s at. This fits our scenario to a T. We have 5 payments left to receive 25 Year IDR Forgiveness on a $127,000 loan. We have no convenient path to accomplish these payments. ICR would be $1900/month with a long forbearance while they process via paper…..that’s our only option as we don’t qualify for any other plan.(no fin. Hardship for IBR) We are stuck, essentially. I’ve shared on your comments before….we are still using 2019 income so I would hate to lose the $327 payments right now with so much being unstable. Trying to wait it out. Biden’s Plan B was announced today. We qualify for 2 of the bullet points-the 25 year (11-1-99 grad loans) and overage of interest. Sadly, I’m trying not to get my hopes up as I’m sure the Republicans will sue asap. What is your opinion on the Plan B being on firmer legal ground?
My opinion is that Plan B is on firmer legal ground.
It is still a politically charged issue, so that makes predicting how a judge will rule extra challenging, but I think the chances of success are much greater than the first attempt.
Thanks for making this post. I agree 100%
I’m currently on SAVE and in PSLF.
What are your thoughts on if they bringing back REPAYE in terms of recertifying income? Switching to REPAYE from SAVE would presumably cause you to recertify income.
Most people have not recertified income in a long time and are now at higher income levels and would results in larger payments.
Also, I wonder how this would affect the recertification extension?
Those are good questions.
In terms of needing a new recertification to put people on REPAYE, I don’t think it would be necessary. The Department of Education had income information for the SAVE enrollment, so they could use those same numbers, if needed.
As for when recertification will be needed again, it is really hard to say. It wouldn’t surpise me to see it get pushed back again. Given how overwhelmed servicers and the Department of Education are at this time, I can see them pushing it back so they can get caught up.