Key takeaways
- The Department of Education is pausing student loan payments for three million SAVE borrowers this month.
- The forbearance period gives the DOE time to recalculate new monthly payment formulas.
- Despite two lawsuits filed by Republican-led groups, payment cuts are able to move forward following a ruling by a US appeals court.
Beginning July 1, three million borrowers on the Saving on a Valuable Education repayment plan, or SAVE, have had their federal student loan payments paused.
The Department of Education placed SAVE borrowers in a “processing forbearance.” Originally, the department planned to recalculate loan payments as part of the next phase of the plan’s rollout.
Under the new repayment formula, undergraduate loan payments for borrowers following the forbearance period would be halved.
However, Republican-led initiatives in Kansas and Missouri resulted in two federal court judges filing injunctions, arguing that the Biden administration doesn’t have the legal authority to roll out parts of the second phase of the SAVE repayment plan.
Because of these lawsuits, the Biden administration is unable to cancel any more federal student debt under the SAVE plan and is also prevented from adding any more provisions to the plan until the lawsuits are resolved.
A federal appeals court Sunday ruled that the already calculated reduced payments could proceed while the Department of Education pursues an appeal. This means millions of borrowers enrolled in SAVE will see their payments drop from 10% to 5% of their discretionary income going forward.
What is SAVE and how do I enroll?
SAVE is a newer income-driven repayment plan designed by the Biden administration to make student loan payments more affordable and help borrowers wipe out student loan debt quicker. It was launched last summer after student loan payments resumed, following a payment pause that started during the pandemic and lasted more than three years.
If you have federal student loans and aren’t currently enrolled in an IDR plan, you can sign up on the Federal Student Aid website. There are four IDR plans to choose from, including the SAVE plan. IDR plans base your student loan monthly payment on your income and family size.
What’s changing with SAVE?
Beginning on July 1, a new repayment calculation was set to go into effect. The plan’s income evaluation would have been reduced from 10% to 5%, so student loan payments for undergraduate borrowers will be cut in half.
So I don’t have to pay my student loans in July?
If you’re a SAVE borrower and received a communication from the US Department of Education alerting you to the change and the forbearance, then no, you won’t owe a payment for at least July.
“While borrowers are in this specific forbearance, no payment is required, their interest rate will be set to 0%, and they will receive credit toward IDR forgiveness and Public Service Loan Forgiveness,” the DOE spokesperson said. “As a reminder, 4.6 million borrowers who have zero dollar payments under the SAVE plan will not need to go into forbearance.”
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