The Biden administration’s new affordable repayment plan, known as SAVE, is facing a significant roadblock due to numerous legal challenges. The program, officially named the Saving on a Valuable Education plan, has garnered attention for its promise of being the most affordable student loan plan to date. However, the implementation of SAVE has been put on hold as a result of the legal battles it is currently entangled in.
One of the key aspects of the SAVE plan that has drawn criticism is its provision for lower monthly payments compared to other federal student loan repayment plans. Additionally, the plan offers quicker debt erasure for those with small balances. These features have become the focal point of legal challenges, particularly from Republican-led states. Critics argue that the Department of Education overstepped its authority by introducing SAVE as a way to circumvent the Supreme Court’s rejection of a sweeping debt forgiveness plan in June 2023.
Despite the legal hurdles, the Education Department has already forgiven $5.5 billion in student debt for 414,000 borrowers through the SAVE plan. While those who have already benefited from the program are unaffected by the current pause, millions of other borrowers are experiencing a suspension of their federal student loan payments. These borrowers have been placed in administrative forbearance, during which the accrual of interest is also halted, similar to the Covid-era payment pause.
The duration of the forbearance period remains uncertain, with experts predicting that it could last for several months or even up to a year. The potential involvement of the Supreme Court in assessing the legality of the SAVE plan could further prolong the delays. Unlike previous payment pauses, the months spent in forbearance under SAVE do not count towards borrowers’ timeline to loan forgiveness, causing concern for those aiming for debt clearance through income-driven repayment plans or Public Service Loan Forgiveness.
While the pause in payments may hinder progress towards debt forgiveness, borrowers are advised to explore alternative options. For instance, the Education Department offers a buyback option for PSLF participants who may have missed payments, enabling them to retroactively make payments to stay on track for debt forgiveness. Switching to another income-driven repayment plan is also suggested for those who wish to maintain credit for the forbearance period, although the transition process can be time-consuming.
Despite the setbacks caused by the legal challenges and delays, enrollees in the SAVE plan are still reaping some benefits. With a $0 monthly payment during forbearance, borrowers are not losing any financial advantage during this period, aside from the time required for the resolution of legal issues. According to higher education expert Mark Kantrowitz, borrowers should focus on the opportunities for financial relief that are available to them, even amidst the uncertainty surrounding the future of the SAVE plan.