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Student loan borrowers who expected smaller monthly payments under the new Saving on a Valuable Education, or SAVE, plan received some bad news on Feb. 18, when a U.S. appeals court blocked the program.
As a result, millions of people will need to switch to a new repayment plan soon.
The adjustment will likely be challenging, said higher education expert Mark Kantrowitz.
“Borrowers who were in SAVE will have to pay more on their federal student loans, in some cases double or even triple the monthly loan payment,” Kantrowitz said.
The recent appeals court order, in addition to blocking SAVE, also ended student loan forgiveness under other income-driven repayment plans.
Here’s what borrowers need to know.
Why was the SAVE plan blocked?
The Biden administration rolled out the SAVE plan in the summer of 2023, describing it as “the most affordable student loan plan ever.”
However, Republican-backed states quickly filed lawsuits against the program. They argued that former President Joe Biden, with SAVE, was essentially trying to find a roundabout way to forgive student debt after the Supreme Court blocked his attempt at sweeping debt cancellation.
SAVE came with two key provisions that the the legal challenges targeted. It had lower monthly payments than any other income-driven repayment plan offered to student loan borrowers, and it led to quicker debt erasure for those with small balances.
(Income-driven repayment plans set your monthly bill based on your income and family size, and used to lead to debt forgiveness after a certain period, but the terms vary.)
The 8th U.S. Circuit Court of Appeals on Feb. 18 sided with the seven Republican-led states that filed a lawsuit against the U.S. Department of Education’s repayment plan.
What happens to my forbearance?
While the legal challenges against SAVE were playing out, the Biden administration put student loan borrowers who had enrolled in the plan into an interest-free forbearance. That plan said the pause on any bill could last until December.
But now, Kantrowitz said, “It will likely end sooner under the Trump administration, within weeks or months.”
Do I need to enroll in another plan?
The answer is yes, you need to enroll in another plan.
Borrowers should start looking now at their other repayment options, experts said.
The recent appeals court order against SAVE also ended student loan forgiveness under many other income-driven repayment plans, including the Revised Pay-As-You-Earn repayment plan, or REPAYE.
Currently, only the Income-Based Repayment Plan, or IBR, leads to debt cancellation.
However, if you’re pursuing Public Service Loan Forgiveness, you should be eligible for debt cancellation after 10 years on any of the IDR plans, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate the repayment of their debt. (PSLF offers debt erasure for certain public servants after 10 years of payments.)
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“It’s also important to point out that all the IDR plans cross-pollinate for forgiveness,” Mayotte said. “If someone has been on PAYE for eight years and now switches to IBR, they will still have eight years under their belt toward IBR forgiveness.”
There are several tools available online to help you determine how much your monthly bill would be under different plans.
Meanwhile, the Standard Repayment Plan is a good option for borrowers who are not seeking or eligible for loan forgiveness and can afford the monthly payments, experts say. Under that plan, payments are fixed and borrowers typically make payments for up to 10 years.
What if I can’t afford the new payments?
If you can’t afford the monthly payments under your new repayment plan, you should first see if you qualify for a deferment, experts say. That’s because your loans may not accrue interest under that option, whereas they almost always do in a forbearance.
If you’re unemployed when student loan payments resume, you can request an unemployment deferment with your servicer. If you’re dealing with another financial challenge, meanwhile, you may be eligible for an economic hardship deferment.
Other, lesser-known deferments include the graduate fellowship deferment, the military service and post-active duty deferment and the cancer treatment deferment.
Student loan borrowers who don’t qualify for a deferment may request a forbearance.
Under this option, borrowers can keep their loans on hold for as long as three years. However, because interest accrues during the forbearance period, borrowers can be hit with a larger bill when it ends.