Educational loan repayment plans in flux after court ruling

The U.S. Department of Education briefly paused enrolling and renewing participants in all income-driven repayment (IDR) plans to comply with a federal court’s injunction.

On February 18, the 8th Circuit Court of Appeals upheld and expanded an earlier 2024 decision preventing the education department from implementing the Saving on a Valuable Education (SAVE) plan and parts of Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans.

These plans calculate student loan payments based on a borrower’s income and family size. After a set number of years, usually 20 or 25, any remaining balance is forgiven.

After a few weeks pause, the online IDR application is once again available for eligible borrowers to apply for PAYE, ICR, and Income-Based Repayment (IBR) plans. The online loan consolidation application is also available again, according to an announcement from the Office of Federal Student Aid (OFSA).

Loan servicers are still updating their systems and will begin processing applications soon, the agency announcement stated.

Court case history

It all started last year when attorneys general of Arkansas, Florida, Georgia, Missouri, North Dakota, Ohio, and Oklahoma filed a lawsuit against former President Joe Biden’s Education Department, arguing it had overstepped its authority in attempting to cancel loans eligible for forgiveness under certain IDR plans.

Then in July 2024, the appeals court temporarily blocked the SAVE plan.

Now the February ruling directs the Education Department to cease implementation of not only the SAVE plan, but also parts of other IDR plans, such as 20- or 25-year forgiveness and any interest subsidies.

Specifically, there were changes made to how the department calculates monthly payment amounts for the IBR, ICR, and PAYE plans. Additionally, the latest court action affects which deferments and forbearances can count as progress toward forgiveness, according to OFSA announcement about the ruling.

“A federal appeals court struck down another one of the Biden Administration’s illegal efforts to transfer student loan debt to taxpayers. In response, the Trump Administration substantially revised the income-driven repayment plan application to conform with the ruling,” said Acting Under Secretary James Bergeron in a March 26 Education Department press release. “Our team was able to relaunch this application within weeks, ensuring borrowers have access and the ability to access all legal repayment plans.”

The case will now return to the Eastern Missouri lower district court, which is tasked with issuing a final ruling on the fate of SAVE.

What this means

Currently, borrowers in SAVE have been placed into a general forbearance, with a suspension of payments and no interest being charged, though the suspension period does not count toward loan forgiveness, either term forgiveness or Public Service Loan Forgiveness.

According to the OFSA, these borrowers will remain in this interest-free forbearance until servicers are able to accurately calculate monthly payment amounts or the court reaches a decision on the availability of the SAVE plan.

During this time, borrowers have an opportunity to make another choice for repayment, based on which of the updated options is best for them, Education Department information states.

Payments on PAYE, SAVE, and ICR can be counted toward IBR plan forgiveness if the borrower enrolls in the IBR Plan.

Paul S. Garrard, founder and president of PGPresents, LLC, an independent student loan consultant company, said in a recent post that the precedent is not to pull students out of a repayment plan they are already in, however “we have no idea how the courts will treat borrowers already in SAVE as regards future payments, especially with what we and many others consider a political environment that is not borrower-friendly.”

Meanwhile, for borrowers who are due to submit their annual recertification request, the OFSA says those recertification dates have been extended by one year from their due date.

The OFSA adds that for those who were due to recertify on or before February 20, but failed to submit their request, they have had their payments temporarily recalculated. These individuals are still enrolled in an IDR plan but need to submit a recertification request as soon as possible to potentially lower their payments.

All borrowers are advised to document and retain all information related to their educational loans, including repayment history.

The AVMA has been in communication with the Trump administration to highlight the vital work being done by veterinarians done across the country. As a member of many higher-education coalitions, the AVMA is working with other health professional organizations on student loan programs to share the profession’s concerns and seek solutions.