Student loan payments suspended for 3 million in SAVE program

About three million borrowers with federal student loans will see their monthly payments suspended in the coming days as the Biden administration tries to recalculate their bills to comply with a federal court order in Kansas.

The recalculations are needed because key parts of President Biden’s new student loan repayment program, SAVE, were temporarily blocked by two federal judges on Monday, just a week before many borrowers were set to have their payments cut by as much as half.

Judges in Kansas and Missouri issued separate preliminary injunctions this week, keeping the SAVE plan’s 8 million participants in limbo until lawsuits filed in the spring by two groups of Republican-led states seeking to overturn the program are resolved. The Justice Department recently filed a motion on behalf of the Education Department to halt the Kansas injunction.

“If the order becomes effective,” the document said, “it will cause irreparable harm to the federal government in the form of irreparable costs for the disruption and will create extraordinary confusion and chaos for borrowers.”

The orders affect participants in SAVE, which bases their payment amounts on their income and family size, in two ways. The Kansas order suspended parts of the program that weren’t already in effect, including a large reduction in monthly payments for people with student debt — from 10 percent to 5 percent of their discretionary income — that was set to take effect Monday. The Missouri judge blocked any new debt forgiveness achieved through the SAVE program, though legal experts said it wasn’t entirely clear how broadly that provision should be interpreted.

About three million borrowers who make monthly payments through SAVE are now granted a payment deferral, putting their accounts on hold.

The Department of Education was recalculating payments for borrowers whose accounts were set to be reduced, and now it needs time to recalculate them. No interest will accrue during this period, but the months of deferment will not count as qualifying payments toward loan cancellation through SAVE or the Public Service Loan Forgiveness program. It is unclear how long the pause will last.

According to the Department of Education, the 4.5 million borrowers who currently owe zero dollars in payments are on time with their payments and have no debt. The Department of Education will notify all affected borrowers in the coming days.

To avoid further confusion, the Department of Education said it will remove online applications for all income-driven repayment programs, including SAVE, and for loan consolidation while it updates its systems to ensure it provides accurate information. The department estimated this could take four to six weeks.

However, borrowers can continue to apply to participate in SAVE and other income-driven repayment plans, as well as loan consolidation, during this time, either on paper or via PDF. Servicers will process these applications, and borrowers who are due to make payments will be placed in forbearance while their applications are reviewed.

“We commend the government for taking immediate action to ensure that the eight million borrowers currently enrolled in SAVE do not have to make payments and are protected from the chaos and certain damage that will result from the two conflicting orders Mike Pierce, executive director of the Student Borrower Protection Center, an advocacy group, and Randi Weingarten, president of the American Federation of Teachers, said in a joint statement.

The Ministry of Education advises borrowers to contact them regularly for more information, and that they subscribe for updates via its website.

Kirsten Noyes contributed to research.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button