The litigation surrounding the SAVE Plan has introduced uncertainty for borrowers using Income-Driven Repayment (IDR) plans like PAYE, IBR, REPAYE, and ICR. While the legal challenges alone are enough to create concern, the additional changes set out in the SAVE regulations further complicate the outlook for each of these plans.
This combination of legal and regulatory uncertainty is particularly frustrating for borrowers who are trying to plan their finances and choose the best repayment strategy. Understanding the current state of these plans and the potential impacts of the ongoing legal battles is essential for borrowers trying to figure out what to do next.
Sherpa Thought: This article focuses on the consequences of the SAVE litigation. If you want to know more about the SAVE lawsuit, be sure to check out this article.
Current State of IDR Enrollments
As of now, borrowers can enroll in any IDR plan except REPAYE, which has been replaced by the SAVE Plan. However, the enrollment process has become more complex due to ongoing litigation:
- Application Process: Borrowers must submit a paper application or upload a completed PDF application through their loan servicer’s website. Online applications are not currently available due to the legal challenges.
- Administrative Forbearance: Once a new IDR application is submitted, borrowers are placed on administrative forbearance for up to 60 days. During this period, interest accrues on the loans, but the time counts toward both IDR forgiveness and Public Service Loan Forgiveness (PSLF).
- General Forbearance: After the 60-day administrative forbearance, borrowers are moved to general forbearance if the application process is still ongoing. During general forbearance, interest does not accrue, but the time spent in this status does not count toward forgiveness.
PAYE, ICR, and REPAYE: The Impact of SAVE and Litigation
PAYE, ICR, and REPAYE were all created under the same congressional authority as the SAVE Plan. This shared origin has raised concerns about the long-term outlook of these plans, especially after a broad and arguably unclear preliminary injunction cast doubt on forgiveness under any of these plans.
However, it’s important to note that ICR, PAYE, and REPAYE should not be impacted by any final ruling in the SAVE case. The plaintiffs in the SAVE litigation are not seeking to overturn the regulations governing these older plans. Additionally, the Administrative Procedure Act (APA) makes it difficult to challenge regulations that have been in place for over six years, which provides an additional layer of protection for ICR, PAYE, and REPAYE. This makes new lawsuits and future challenges to PAYE, ICR, and REPAYE unlikely.
Even though the rules for these plans are unlikely to be overturned or challenged directly, they can still be eliminated by the SAVE regulations. As the later sections explain, SAVE as currently written significantly impacts these other IDR plans and could phase them out over time.
Thus, the outlook for all IDR plans is direcly impacted by the SAVE ligitation. If SAVE wins in court, availability of some plans becomes limited. If SAVE loses, we revert back to older rules. Because each plan is different, the potential changes and impacts from SAVE are also slightly different.
PAYE: What Happens if SAVE Survives vs. SAVE Gets Struck Down
PAYE (Pay As You Earn) is currently closed to new enrollments under the SAVE regulations. Borrowers who were already enrolled in PAYE can remain on the plan, but no new borrowers can sign up.
If the SAVE Plan survives the ongoing litigation, PAYE will remain closed to new borrowers. However, if the new SAVE regulations are struck down, PAYE could be reopened for new enrollments, allowing borrowers to choose this plan if it better suits their financial situation.
ICR: Different Rules for Parent PLUS Borrowers
ICR (Income-Contingent Repayment) remains available for borrowers with Parent PLUS loans, but it is otherwise closed to new enrollments, similar to PAYE.
If the SAVE regulations continue, ICR will remain an option solely for Parent PLUS borrowers. However, if the SAVE Plan is overturned, ICR could once again become available to all borrowers, offering another option for those who might benefit from its unique terms.
IBR: Statutory Certainty
IBR (Income-Based Repayment) is currently available to eligible borrowers and is considered a secure option due to its statutory foundation.
The SAVE litigation revolves around whether the Department of Education exceeded its authority granted by Congress when creating the SAVE Plan. IBR, however, is fundamentally different because its terms and conditions were established directly by Congress. This means that any changes to IBR would require new legislation, providing a stable and secure option for borrowers.
Under the SAVE regulations, borrowers who have been on SAVE for a total of 60 months are not eligible to sign up for IBR. If SAVE is struck down, this 60-month restriction would likely be eliminated, ensuring that IBR remains accessible to all eligible borrowers.
REPAYE: Modified and Replaced by SAVE
REPAYE (Revised Pay As You Earn) has been modified and renamed to become the SAVE Plan. Borrowers who were previously enrolled in REPAYE were automatically transitioned to SAVE. As a result, REPAYE is no longer available for new enrollments.
If the SAVE Plan survives, REPAYE will be permanently replaced by SAVE. However, if the SAVE Plan is struck down, REPAYE could be reinstated, allowing borrowers who preferred REPAYE’s terms to once again enroll in the plan.
It is also likely that if SAVE is struck down, borrowers who signed up for SAVE will be moved back to REPAYE.
Expect More Changes Ahead
The future of PAYE, IBR, REPAYE, and ICR hinges on the outcome of the SAVE litigation, but the legal protections and statutory foundations of these plans offer some security.
Borrowers should remain informed about ongoing legal developments and understand how different scenarios might impact their repayment options. Whether SAVE survives or gets struck down, understanding the current state of these plans and their potential future is crucial for making informed decisions about your financial future.
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The Biden Administrations’ off ramp period ends on 9.30. how does this impact your payments if adjustments are made to your account for some loan forgiveness. The adjustment were estimated to take place on 9.1. I am a Parent Plus borrower who went into repayment April 2003. My loans are consolidated. I did received the email with instruction to opt out by 8/30. I didn’t opt out, because I have no idea of what I would be opting out of. This is totally confusing and frustrating, I can only see it getting worse. Thank you in advance for a reply
I think it will make the most sense to clarify the various programs that you’ve discussed in your comment. They all sound similar, but if we sort them out, hopefully it will clear things up.
The on-ramp is a program to help borrowers who have missed payments or struggled with the transition back to repayment. During the on-ramp period, negative credit reporting and other collections activities have stopped. Once the on-ramp ends, these activities will resume.
The one-time adjustment was supposed to have been completed by 9/1, and we are still waiting on results. I’m still hopeful that they finish before the election.
The opt-out email you received was in reference to forgiveness 2.0. The only circumstance were opting out makes sense is if you don’t want forgiveness because of state taxes. Most people will not need to opt out. If you want to know more, I wrote an article about Forgiveness 2.0 and the chances of it actually happening.
Thank you very much for your reply. My loans were in Administrative Forbearance, due to Covid, I lost my job (corporate downsizing) and took advantage of the on ramp period, I am retirement age so I doubt very seriously I will enter the workplace again, unless it’s on a part time basis. I could certainly benefit from some loan forgiveness. My servicer is Ed Financial, honestly they seem confused too; I was told this one time IDR adjustment was sent to Congress, it passed the House and was waiting on the Senate, I asked the Rep, is she was confusing this with the variations of the Save plan, she said no. I am not eligible for any save plan, PSLF forgiveness or any income contingent program that I am aware of. My loans are federal direct parent plus loan I signed for, for my daughter under grad loan in 2000. I understand the on ramp period that has nothing to do with potential forgiveness, however I didn’t want to start making payments if I am eligible for loan forgiveness and that what prompted my question to you. Thanks again for your reply, will have to wait it out like 30 million other borrowers. Thank you for the article.
Kind Regards