On Friday, November 15, 2024, the Biden Administration and the Department of Education (DOE) proposed a temporary option for borrowers affected by the SAVE injunction. If approved, SAVE borrowers may earn PSLF credits by switching plans during the Administrative Forbearance. This proposal will not go into effect until mid-December.
It is to reopen the two Income-Driven Repayment (IDR) methods recently eliminated for new borrowers and those enrolled in SAVE. These two methods were Pay-As-You-Earn (PAYE) and Income Contingent Repayment (ICR). If approved, this would allow SAVE-enrolled borrowers to change to one of these options or Income-Based Repayment (IBR or New IBR).
SAVE IDR Interim Proposal Details
Due to the SAVE lawsuit, this rule is very narrow in focus. This proposal revises the end dates of both PAYE and ICR to July 1, 2027, from the original date of July 1, 2024. This was all part of the SAVE legislation.
As part of the SAVE legislation, the Revise-Pay-As-You-Earn (REPAYE) was also eliminated. Borrowers enrolled in REPAYE were converted directly to the SAVE option. Due to the lawsuit, REPAYE cannot be extended as part of this interim proposal. That creates a gap for some borrowers who had original loans prior to 2007.
PSLF Credits and SAVE Lawsuit
The biggest issue for the SAVE lawsuit is the inability to earn PSLF credits during this period. As of October 1, 2023, the rules of earning PSLF credits returned to normal. There are four major items:
- Employed by the right type of employer
- Be a full-time employee or a part-time employee working two jobs over 30 hours
- Make 120 on-time payments
- Use an IDR payment method
Payments are not being made with the SAVE Administrative Forbearance, so PSLF credits cannot be earned during these months. If this interim proposal is approved, enrolled SAVE borrowers will have better repayment options to convert to.
Monthly Payment Change
One of the most attractive advantages of the SAVE method was the monthly payment calculation. It increased the discretionary income allowance, making payments lower for most borrowers. It also had a percentage income advantage related to undergraduate and graduate loans. If PAYE and ICR are re-stated, most borrowers will see their monthly payments increase.
The advantage of changing plans and making payments is that borrowers pursuing PSLF will now be making payments and will earn PSLF credits if they switch. Your payment will likely go back to your Pre-SAVE amount.
Possible Gap for Older Loan Borrowers
One of the reasons REPAYE was selected to be converted to SAVE was that it covered the broadest loan group. Many new IDR methods require the borrower to have loans originated by a specific date. You will not benefit from this program if you have loans with an outstanding balance dated prior to 2007. You will be limited to the old IBR method, which is more expensive than PAYE and SAVE.
Second Chance to Re-evaluate PAYE
The SAVE program offered many benefits compared to the other IDR methods. Two shortcomings of the program were the payment cap and the 20-year end-of-term forgiveness. Many borrowers only considered their current payment and overlooked some long-term benefits.
Some of the IDR methods offer a payment cap no matter what your income grows to. It was usually the borrower’s 10-year standard rate. SAVE did not have that income cap, which could become an issue for high-income earners or borrowers who needed proper tax planning.
In addition, the SAVE program used a 25-year end-of-term forgiveness time frame, while PAYE offered a 20-year limit. End-of-term forgiveness is still a risk since it is currently part of the SAVE lawsuit.
SAVE Interim Proposal Summary
Based on the DOE’s recent proposal, SAVE borrowers may have another option to earn PSLF credits while the SAVE lawsuit is resolved. It is unclear when this will be determined, but the Administrative Forbearance was put in place for 6 months. We believe that SAVE is likely to be rescinded due to the cost of the program. As a result, we are still determining which options will be available.
Please get in touch with us to discuss your options if you need help with this analysis.
