Payment obligations have been temporary pause student loan payments, as it been recorded three million borrowers, but the status of potential future relief via the SAVE program is still uncertain.
Borrowers in the SAVE program can expect hiatus this month with the added possibility of decreased loan down the line.
Meaning of SAVE
The Biden administration’s SAVE program is a novel income-driven repayment plan designed to ease the strain of student loan payments and facilitate faster debt elimination, subsequent to a payment hiatus that lasted over three years as a result of covid-19 pandemic.
More Insights
- 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.
In addition, 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.
Can i 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.”