By Chris Hicks | September 25, 2024
Nearly 8 million student loan borrowers were enrolled in the Saving on a Valuable Education (SAVE) repayment plan in August 2024 when the 8th Circuit Court abruptly ripped it away from them. This was a result of legal challenges brought by two sets of Republican attorneys general, contending that SAVE be placed on hold until the court cases play out, which could very well take months-to-years.
In the meantime, millions of borrowers and their families have been stuck in limbo. Many of these borrowers took proactive steps to enroll in SAVE and created their household budgets based on the promise of a more affordable monthly student loan payment and a faster pathway to student debt relief. The U.S. Department of Education (ED) responded quickly by placing SAVE borrowers in a zero-interest forbearance—pausing payments for folks currently enrolled in SAVE—but making this time ineligible to count towards debt relief under Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) cancellation. Unfortunately, what was intended to be an economic reprieve for borrowers has resulted in millions being trapped in a student debt purgatory where debt relief is nowhere in sight.
Worse yet, amid all of this chaos brought on by the courts, this month marks the end of two vital protections for student loan borrowers:
- The Administration’s current “on-ramp” protections, which have helped shield borrowers from many of the harshest economic consequences of falling behind on their student loans; and
- The deadline to enroll in the “Fresh Start,” program, which helps borrowers in default get back into repayment more easily.
In response to the myriad of problems this court interference has thrust onto an already broken student loan system, ED has placed these borrowers into a mandatory administrative forbearance. But for far too many borrowers, this could stall their progress towards student debt relief indefinitely due to ED deciding to not count this time towards eventual PSLF or IDR cancellation.
Here are just a few of the stories of financial harm and distress that we have heard from borrowers:
“I’m a 66 year old, handicapped special ed teacher. I started teaching in 2012. I was advised by [my student loan servicers and] … they put me in PSLF & PAYE programs. … MOHELA took over the loan and put me in the SAVE plan. Now they put me in forbearance & the months don’t count toward my 120 qualifying payments. I’m 2-1/2 years away from working off my debt. I’m an indentured servant & can’t retire.” – Borrower from California
“I am going to be 74 in December and will have 110 eligible months but now the Department of Education isn’t counting forced forbearance. I was hoping to pay this off by October 2025 before turning 75. Not sure if MOHELA will count all these months… I’m not sure I can keep working past 75. What can I do?” – Borrower from Texas
“For ten years, I meticulously tracked every payment and document for PSLF, making 119 qualifying payments as an US Govt teacher struggling to get by. Just before my final payment, I was placed in forbearance due to the 8th Circuit blocking the SAVE plan. Now, at 40, instead of loan forgiveness, I may be forced to move back to Tennessee to live with my parents. Despite doing everything right, the system failed me, leaving me with broken promises and an uncertain future.” – Borrower from Nevada
“MOHELA repeatedly mishandled my applications for the SAVE payment plan (by failing to exclude my spouse’s income, despite the fact that we filed separately for that sole reason). It took months (and filing a complaint with StudentAid) to get it fixed. In light of the legal challenges to SAVE and the suspension of PSLF credit during the stay of that payment plan, I’m faced with the options of (1) forgoing PSLF credit or (2) even higher monthly payments than I had on PAYE, which is now closed.” – Borrower from North Carolina
ED’s decision to not count this time spent in administrative forbearance towards PSLF and IDR cancellation is likely to have long-lasting ripple effects on borrowers and our entire economy. We know that student debt makes it more difficult for these borrowers to buy a home or car, reduce other debts, start a business, or grow their families.
Student loan servicing companies have failed.
For borrowers who are most likely to face financial hardship when ED’s “on-ramp” comes to an end later this month, these court cases make it much more difficult for borrowers to successfully get back on track. The on-ramp was a 12-month protection that allowed borrowers to avoid delinquency and default if they fell behind and protected them from collections or having negative marks on their credit reports. New research from the Pew Charitable Trust found that borrowers who benefited from the on-ramp were lower-income and less financially secure, and found that more than half of survey respondents said they couldn’t afford their monthly payments.
While these borrowers could have enrolled in the SAVE plan and potentially received a $0 monthly payment, the recent court cases now make it impossible for borrowers to receive these necessary benefits. ED has encouraged borrowers to use a paper application to get into the pipeline to enroll in SAVE, which will transition them into forbearance until the court cases are resolved. But reports from borrowers attempting to follow ED’s guidance suggest that student loan servicers are failing to notify borrowers of their ability to do so, or are failing to apply the forbearance to their account. This borrower from Connecticut shares their experience of trying to follow ED’s guidance but MOHELA derailing them:
“When I called my loan servicer MOHELA, they indicated that the Department of Education has instructed them not to process any income recertification deadlines or income driven applications. What this means for me, is that despite me uploading evidence of my income and the recertification application by the deadline required of me, my application WILL NOT be processed which will result in my current loan payment increasing from $395 a month to nearly $1800 a month. My only options are to pay $1800 (despite the fact that my income does not warrant me paying that amount under my IBR plan) or go into a voluntary deferment and NOT pay anything on my loans which will not count towards a qualifying payment on my Public Service Loan Forgiveness counts. Neither of these options is acceptable.”
A borrower-centered response is necessary.
Our student loan system has long been broken, but the mess that borrowers are facing today is unprecedented. Due to the federal court injunction preventing ED from implementing the SAVE Plan, the suspension of online applications for all other IDR plan options, and the processing backlog of paper applications, millions of borrowers are essentially stuck in limbo through no fault of their own—and may be for years. These borrowers should not be further harmed by having their progress toward IDR or PSLF cancellation stalled indefinitely. ED’s response to this chaos must be to center borrowers and protect them from the economic fallout of these obstructionist lawsuits.
This is why we joined more than 100 of our allies in calling on ED to count the time that borrowers are in this forced forbearance towards their progress on IDR or PSLF cancellation, and extend the on-ramp and Fresh Start to ensure that no borrower is forced into delinquency, default, or collections while they are unable to access the full suite of affordable repayment options they are entitled to under the law.
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