Over the past 18 months, a series of changes have been made to the student loan repayment and forgiveness programs. Some of these changes were to correct prior problems and guidance the loan servicer gave. These changes have also included new programs such as the SAVE (Save on A Valuable Education) program and IDR One-Time Adjustments.
As a result of all of these changes, it has been confusing for consumers and loan servicers. Restarting the repayment process after COVID-19 was a significant hurdle, but new rules made it overwhelming. This article gives you an overview of the current status and what you need to know to move forward.
Program Successes and Cost
COVID, the National Forbearance, and a change in Administration changed the student loan repayment and forgiveness landscape. These events have resulted in zero interest periods, non-payments, and increased loan forgiveness for many borrowers.
On August 14th, Education Secretary Miguel Cardona stated, “We’ve approved $169 billion in relief for nearly 4.8 million Americans entitled to relief under various programs, including teachers, veterans, and other public servants; students who were cheated by their colleges; borrowers with disabilities; and more.”
Here is a summary of the programs:
- COVID National Forbearance Period (41 months) – estimated at between $165 to 190 billion dollars, affecting approximately 45 million borrowers
- PSLF Limited Waiver (thru 6/30/23)– $46 billion, affecting approximately 670K borrowers. This number is understated since many borrowers receive payment credit months that accelerate forgiveness but have not yet been granted.
- IDR One-time Adjustment – Amount not available but could impact over 10,000 or more borrowers based on the rules.
- SAVE Repayment Method—It is estimated to cost $300 billion or more over ten years. This estimate does not include a loophole for interest-free grad plus loans. Some estimates are closer to $600 million. Currently, over 8 million have enrolled. This program has been halted due to legal action from some states.
- A New Debt Cancellation Program – President Biden’s new plan will be released this fall to accelerate long-term repayment borrowers. Details are unavailable at this time but are planned to be released in the fall of 2024. The estimated cost is over $275 billion
SAVE Repayment Plan In Limbo
Due to two lawsuits, the DOE has put the current SAVE repayment plan on hold. Based on various legal actions, the future of the SAVE program will likely be resolved at the Supreme Court level. On August 28, the Supreme Court declined a request to lift the SAVE injunction until the lower court reached its final decision. As a result, the 8 million borrowers will remain in Administrative Forbearance during the halt.
During the Administrative Forbearance, borrowers will not need to make payments or be charged interest. The downside is Public Service Loan Forgiveness credit months will not be earned.
These legal actions could mean the end of the SAVE program based on the Supreme Court’s prior decision. The Supreme Court decision was based on two critical points in the One-time forgiveness proposal. The first was the authority interpretation of a specific law, and the second was that the program cost would need congressional approval. These were the two major factors that caused it to be rejected.
Under the SAVE lawsuit, the same two issues exist. The DOE used a method to update current rules of a law to make them more specific. This rule-changing method assumes the adjustments will be budget-neutral or favorable, so congressional approval is unnecessary. In this case, SAVE is not budget neutral as it is estimated to cost over $300 billion.
Based on the Federal Circuit court option, some believe this risks the entire loan forgiveness process. In my opinion, these recent lawsuits are limited to only the SAVE program. The SAVE halt has also had other impacts on other repayment processes.
Student Loan Consolidation on Hold
One of the biggest consequences of the SAVE halt is the student loan consolidation process. Currently, the electronic consolidation process is unavailable on the StudentAid.gov website, limiting borrowers to only the paper submission process.
According to the DOE, they are still processing paper consolidation forms. It is still being determined if they can process paper consolidations if the borrower selects an Income-Driven Repayment (IDR) method. They should process the consolidations if the borrower chooses a standard or graduated repayment method.
My fear is that they will hold off on all of the paper consolidation until the DOE and Supreme Court provide more clarity.
IDR One-Time Adjustment
This program corrected borrowers’ payment credit months due to late payments, certain forbearances, and other issues. It was an extension of the original PSLF Limited Waiver program, which expired on 10/31/2022.
The original IDR one-time Adjustment was to end on 12/31/2023 but was extended until 6/30/2024. Adjustments were initially planned to be completed by August 2024. It appears that they will be available in September at this time.
These adjustment payment periods are critical for borrowers using an IDR repayment method. The credit months will determine the final payoff date based on the repayment method that the borrower is enrolled in. Different repayment methods have different lengths of time over which the loan can be amortized.
New Planned Student Loan Forgiveness Program
President Biden has proposed another new student loan debt cancellation plan, which will be launched in the fall of 2024. It explicitly targets long-term borrowers, borrowers enrolled in low-value programs, and other personal financial hardship situations.
It is still being determined if this program will move forward. Based on previous Supreme Court decisions, the outcome of the SAVE legal battles could delay or halt it. This program followed the same approval process as SAVE.
Parent PLUS Double Consolidation Expiration
The Parent PLUS Loan Double Consolidation process has been available for years. It was a loophole in the system that has been corrected. In this case, the DOE has allowed a window to take advantage of this loophole. It expires on 6/30/2025. The problem is borrowers need to start the process 5 to 7 months before it expires.
It is not a program that borrowers enroll in but a series of steps that they must follow to reduce their repayment by over 50%. Another article, the Parent PLUS Double Consolidation Loophole: A Comprehensive Guide, provides more details.
Summary of Student Loan Repayment and Forgiveness Confusion
Due to the amount of change, borrowers are overwhelmed and confused. The student loan repayment and forgiveness process is complex enough without continuous changes. This PayForED article lists the different programs and helps borrowers understand program eligibility and deadlines.
There are still many open issues, and the DOE has not met many of its original deadlines. PayForEd has a trained advisor who can help you navigate these changes and processes.
