This development comes after a two-month hiatus, during which the system was taken offline following a court injunction against President Joe Biden’s new IDR plan, the SAVE (Saving on a Valuable Education) program.
The role of IDR in loan forgiveness
Income-Driven Repayment (IDR) is an essential component for borrowers aiming to achieve student loan forgiveness. Under IDR plans, monthly payments are based on income and family size, potentially leading to forgiveness of any remaining balance after 20 or 25 years of qualifying payments. Additionally, IDR is a cornerstone of the Public Service Loan Forgiveness (PSLF) program, which forgives loans after 10 years of qualifying public service work.
However, recent legal setbacks placed borrowers in a challenging situation. The online application for IDR was suspended in response to a nationwide injunction that blocked the Biden administration’s introduction of the SAVE plan, a new income-driven plan that was meant to replace the Revised Pay As You Earn (REPAYE) plan. As the Department of Education worked to comply with court orders, borrowers had no digital access to update their income information or switch repayment plans.
SAVE plan forbearance
More than 8 million borrowers who were either enrolled in or transitioned to the SAVE plan found themselves in forbearance since August. During this period, no payments were required, and loan balances did not accrue interest. However, this period of forbearance has not been counting toward loan forgiveness under either IDR or PSLF, effectively stalling borrowers’ progress. This posed a significant problem for those nearing the end of their forgiveness timeline.
For instance, some borrowers were close to completing their 20 or 25-year repayment term under IDR or meeting the 10-year public service requirement under PSLF. The freeze on forgiveness eligibility during the forbearance has been especially frustrating for these individuals. The Department of Education had suggested that borrowers switch to another IDR plan to keep moving toward forgiveness, but with the online system offline, applicants were limited to paper applications, which caused further delays in processing.
Online IDR application restored
As of last week, the Education Department has reactivated the online IDR application system, enabling borrowers to again apply for income-driven plans and consolidate loans through the portal at StudentAid.gov.
“Borrowers may apply for IDR plans and/or to consolidate loans by using the online applications” available at StudentAid.gov, says updated department guidance.
This is a notable step for those needing to recertify their income or change their repayment plan to keep on track for loan forgiveness. However, due to the injunction, the SAVE plan remains inaccessible for new enrollments, leaving the Income-Based Repayment (IBR) plan as the primary option for borrowers who need to exit the SAVE plan’s forbearance period.
The department has clarified that while borrowers cannot enroll in the Pay As You Earn (PAYE) or Income-Contingent Repayment (ICR) plans due to the court order, they can switch to IBR, which would allow them to continue accruing progress toward student loan forgiveness under both IDR and PSLF.
“Borrowers should note that, under the court’s injunction, no new enrollments are being accepted for the Pay As Your Earn (PAYE) or Income-Contingent Repayment (ICR) Plans,” explains the department. But IBR remains available.
Weighing the costs of switching to IBR
Borrowers contemplating the switch to IBR should consider the financial implications. While it would allow them to continue making progress toward forgiveness, IBR typically results in higher monthly payments compared to the SAVE plan.
For example, a single borrower earning $60,000 annually would pay approximately $220 per month under the SAVE plan, but the monthly payment under IBR could be around $470. Additionally, IBR lacks the interest waiver benefits of the SAVE plan, which means borrowers could see their loan balances grow due to negative amortization if their payments don’t cover the accruing interest.
Processing delays and forbearance eligibility
While the online application is back up and running, borrowers should brace for delays in processing. The Department of Education has warned that applications may take a considerable amount of time to process, especially for those applying to the SAVE or REPAYE plans.
“Borrowers should expect a lengthy delay in processing of applications, especially for borrowers applying for SAVE/REPAYE,” says the department. “We do not currently have an estimate of how long this will take.”
During this processing period, borrowers can be placed into temporary forbearance for up to 60 days. This time will count toward both PSLF and IDR forgiveness, but interest will continue to accrue. If the application is not processed within 60 days, borrowers could be placed into general forbearance, which pauses forgiveness progress.
