The Saving on a Valuable Education (SAVE) repayment plan has offered a lifeline to millions of federal student loan borrowers, promising lower monthly payments and a unique interest benefit. However, with recent updates and ongoing legal considerations, it's crucial for borrowers to understand exactly what the SAVE plan means for their individual circumstances, especially concerning interest accrual and progress toward loan forgiveness.
Given the current situation, for many borrowers, it’s best to hold tight in the SAVE plan and wait for legal and policy certainty. Other borrowers, particularly those seeking to make payments to qualify for forgiveness, can consider changing repayment plans.
At Summer, we're committed to helping you make informed decisions about your student loans no matter your goal. This post addresses borrowers currently in the SAVE administrative forbearance, outlining the current reality, offers advice for borrowers based on your goals, and provides actionable next steps.
The Current Reality: SAVE Plan Litigation and Administrative Forbearance
Due to recent court actions, the Department of Education no longer permits borrowers to enroll in the SAVE plan. The Department has placed borrowers who are currently enrolled in the SAVE plan into a temporary general administrative forbearance. It's crucial to understand the key features of this specific forbearance:
- No Payments Required: You are not required to make payments during this administrative forbearance period.
- Interest is Not Accruing: Interest on your federal student loans is temporarily paused.
- Time Does Not Count Towards Forgiveness: This is a critical point. Months spent in this specific administrative forbearance do not count towards achieving either Income-Driven Repayment (IDR) forgiveness (the 20 or 25-year timeline) or Public Service Loan Forgiveness (PSLF) (the 120 qualifying payments).
- Length of the forbearance is uncertain: You can remain in the SAVE forbearance until there is further policy decisions from the Department about next steps. The Department has generally indicated this will be when servicers are able to accurately calculate monthly payment amounts or the court reaches a decision on the availability of the SAVE plan.
This means that while you have a temporary break from payments and interest, your timeline towards loan forgiveness is currently paused if you remain in this forbearance.
Identifying Your Situation and Potential Next Steps
Your best course of action depends largely on your long-term goals for your student loans, particularly if you are pursuing Public Service Loan Forgiveness.
Borrowers Actively Pursuing Public Service Loan Forgiveness (PSLF)
If you are working full-time for a qualifying government or non-profit employer and are actively working towards the 120 qualifying payments required for PSLF, every month spent in this forbearance is a month that does not count towards your 120 PSLF payments, effectively pushing back your forgiveness date.
Options to consider:
Stay in the SAVE Administrative Forbearance: You aren’t required to make payments and interest is not accruing. However, your PSLF forgiveness timeline will be delayed by the length of the forbearance. This might be a viable option if you are not close to 120 payments and prefer the temporary payment pause, understanding the delay in forgiveness.
Switch to a Different PSLF-Eligible Repayment Plan: To resume making qualifying PSLF payments, you can explore switching out of the SAVE administrative forbearance into another repayment plan that qualifies for PSLF, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), or if eligible Income-Contingent Repayment (ICR). Switching allows you to start making payments that count towards your 120 qualifying payments.
Other considerations:
- Pick the IDR plan with the lowest monthly payment. The Department will process your PSLF forgiveness under any IDR plan when you hit 120 qualified payments. Summer's tools can help you identify the IDR plan that offers the lowest monthly payment. Your monthly payment amount will be calculated based on the rules of the new plan you choose.
- Servicers may take 2+ months to process IDR applications as they process through historic backlogs. That means your payments may not resume immediately.
PSLF Buyback: The Department of Education has introduced a PSLF Buyback option for borrowers that already have 120 months of eligible employment. Borrowers with 120 months of eligible employment can buy back (make payments to cover) past months that were not originally counted as qualifying payments because you were in an ineligible deferment or forbearance status. You can make a lump-sum payment equal to what your IDR payment would have been for those months. This could be an option to explore to recover lost PSLF progress from a past forbearance period, but it requires meeting specific criteria and having the funds available. Switching plans allows you to make current payments that count without waiting for or relying on the buyback process for future months.
Other considerations:
- The Department is not yet clear on which periods of ineligible deferment or forbearance status count.
- You may wait a while. The Department has been slow to process existing buy-back requests.
- Making a large lump-sum payment may not be feasible for everyone.
- Don't apply if you don't have 120 qualifying months of payments. The Department may permit borrowers who have not yet achieved 120 payments to use the Buyback option in the future, but this is not yet implemented.
- Read the fine print carefully if you’re considering this option.
Borrowers NOT Primarily Focused on Public Service Loan Forgiveness
If you are not working towards PSLF, or if PSLF is not your primary forgiveness goal (e.g., you are aiming for IDR forgiveness after 20/25 years or planning to pay off your loans), the impact of the SAVE administrative forbearance is different. For most borrowers not pursuing PSLF, staying in the administrative forbearance offers the immediate benefit of no payments or interest.
The benefit of the SAVE forbearance is you currently have no required monthly payments, and interest is not accruing. This provides immediate financial relief. The drawback is time spent in this forbearance does not count towards the 20 or 25 years required for IDR forgiveness. Your forgiveness timeline is paused.
Options to consider:
Stay in the SAVE Administrative Forbearance: You continue to benefit from the payment and interest pause. Borrowers tell us this option is appealing if they are maximizing short-term cash flow, or want to wait for repayment options to stabilize, and the delay in IDR forgiveness is an acceptable trade-off. While payments are not required, borrowers not expecting forgiveness under an IDR plan can make payments to lower their principal balance before interest resumes.
Explore Other IDR Repayment Plans: You could explore switching to another repayment plan, such as a different IDR plan, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), or if eligible Income-Contingent Repayment. Switching from the SAVE forbearance to another plan will restart payments. While you will resume progress towards IDR forgiveness (if on an eligible IDR plan), your monthly payment is likely to be higher than your previous SAVE calculated amount.
Other considerations:
- Consider the IBR plan if you are close to the 20 or 25 year forgiveness threshold. Due to legal challenges, the Department is not currently processing forgiveness under the PAYE or ICR plans. If you are enrolled in the IBR plan you will have your loans forgiven.
- Consider PAYE or ICR if you have many payments left before forgiveness. Monthly payments are likely lower under these plans and payments are counted toward forgiveness if you enroll in IBR. But you will have to switch to the IBR plan when you hit the requirement counts.
- There are pros and cons of each income-driven repayment. Summer's tools can help you identify the IDR plan that offers the lowest monthly payment. Your monthly payment amount will be calculated based on the rules of the new plan you choose. You can find more information about each plan in our resource center.
- Servicers may take 2+ months to process IDR applications as they process through historic backlogs. That means your payments may not resume immediately.
If your goal is to pay off your loans faster, the Standard plan might be an option, but it will have higher payments than income-driven plans.
Summer has your back:
Summer's tools can help you identify the IDR plan that offers the lowest monthly payment. Your monthly payment amount will be calculated based on the rules of the new plan you choose.
The current situation with the SAVE plan and the administrative forbearance is complex. By understanding the impact on your specific goals, particularly for forgiveness, you can make an informed decision about whether to remain in forbearance or explore other repayment options to continue making progress. Summer is here to provide you with the resources and support you need to navigate these choices effectively.
Are you an employer interested in bringing Summer to your organization? Get in touch with the Summer team.
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