On Wednesday, 12/18, the Department of Education (DOE) announced the ability to enroll in two previously closed IDR methods: Pay As You Earn (PAYE) and Income Contingent Repayment (ICR).  These methods were eliminated for new enrollees as part of the SAVE Rollout.  This article is a guide to navigating the PAYE and ICR options now that they are available due to the SAVE lawsuit.

Due to the SAVE lawsuit, over 8 million borrowers who enrolled in this new IDR method have been in limbo regarding student loan repayment.  The Save on A Valuable Education (SAVE) was put into law in October 2023.  It was part of the Biden Administration’s goal to reduce student loan repayment and enhance student loan forgiveness.

The program put borrowers on hold since late June 2024 due to various states’ lawsuits.  Enrolled SAVE borrowers were placed in Administrative Forbearance while the lawsuit is settled.  The change in administration and the prior Supreme Court decision do not look favorable for a positive outcome for SAVE.  Yet, the DOE, Under Secretary James Kavall, stated, “The Department continues to defend in court the authority to cut payments for borrowers with high debts and low incomes through the SAVE Plan.

Understanding Administrative Forbearance

The DOE offers this forbearance program in special situations.  In this case, no interest is charged, no payment is required, and payment credits are not earned.  Payment credits are crucial for Public Service Loan Forgiveness (PSLF) program borrowers.

To earn PSLF credits, the borrower must be an employee of an approved employer, make 120 on-time payments, be considered a full-time employee (some exceptions), and make payments using an Income-Driven Repayment (IDR) method.

SAVE offered lower payment than the current IDR methods and qualified as a valid PSLF repayment method.  As part of this rollout, borrowers enrolled in RePAYE were converted to SAVE, and no new enrollment was allowed into PAYE.  ICR was only available to Parent PLUS borrowers but not to other borrowers.

The PAYE and ICR options allow borrowers to enroll in an IDR plan and earn credit payment months.

Who Should Consider Switching Out of SAVE

First, borrowers pursuing PSLF should consider these options.  This way, payment credit months can be earned.  At this time, the Administration Forbearance is scheduled until March.  It is unclear when the lawsuit will be resolved and which options borrowers will have.  If SAVE is restored or another option is presented, borrowers could switch to that plan later.

Some may be asking why I would opt out of Administrative Forbearance.  If you look at the timing, no matter what your end dates are, your income will likely be higher at that time.  Making payments now at a lower income will be beneficial.

Married couples with only one spouse who has federal loans should consider this opportunity.  If SAVE reverts to RePAYE, the joint income will be used to calculate the monthly payment amount.  SAVE allowed for filing married and separate, while RePAYE did not.

Those pursuing end-of-term forgiveness may consider it for the same reason stated above, related to future income.  Payment at the back end could be more expensive.  Borrowers need to know that the SAVE method has another limitation.  It does not have a payment cap like PAYE, which is the 10-year standard amount.  For future high earners, starting payment earlier could be beneficial.

Switching to the Right IDR Option

This decision may be the tricky part for many borrowers.  The DOE has been processing limited to zero IDR payment requests due to a system limitation related to SAVE.  If you switch plans, you can enter processing forbearance, resulting in a zero payment and interest being changed, but you will be earning PSLF payment credits.

The other issue is which plan to select and which will be available.  This part confuses many borrowers due to the various IDR method rules.  The repayment options are based on the timing and types of loans that the borrower has.

Borrowers with all original student loans before 2011 cannot enroll in PAYE since they need a loan after 2011 to qualify.  If all your loans are after 2014, the borrower may want to consider New IBR rather than PAYE.

Borrowers with older loans will only have ICR or Old IBR as options.  Both methods have a higher payment percentage than the newer PAYE and New IBR methods.

Income Planning When Switching Methods

The borrower must provide current income as part of the IDR switching process.  This updated income could result in a big surprise for many borrowers.  Due to COVID, the typical income recertification process has been delayed for almost 5 years.  Many borrowers’ IDR payment amount is based on their income from 2020 or before.  The DOE minimized the income verification during the SAVE conversion.

As a result, if you change the repayment method, the borrower will be required to provide an update on their income.  This new monthly payment amount will reflect the updated income plus the impact of a less generous SAVE calculation.  This change in payment method could be a big surprise for many borrowers.

When switching IDR methods, your IDR income recertification date will not change unless you consolidate your loans.  Annual income recertification should restart in early 2025, but no date has been announced.

The new IRS integration allows borrowers to opt into IRS integration and eliminate the annual recertification.  This option will eliminate the risk of missing the recertification date and the entire income recertification submission process.  If you use this option, borrowers will need to do the proper tax planning.  This planning is especially true for married couples where only one spouse has federal loans.

Navigating the PAYE and ICR Option Due to the SAVE Lawsuit Summary

Student loan borrowers have experienced confusing and often frustrating times.  The different forgiveness and repayment announcements made planning difficult.  When you add in the complexity of the income-driven repayment methods, borrowers are throwing up their hands in disgust.

With the proper planning, these plans can provide viable and affordable options.  The entire loan forgiveness process requires that you use one of the IDR’s methods.  With the IRS integration, the loan servicers cannot provide the advice you need to make the correct decision.  Properly managing the borrower AGI is critical.  PayForEd and their listed advisors can provide the information you need to decide your repayment and forgiveness options.