Roughly three million borrowers with federal student loans will see their monthly payments paused 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 necessary 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’ payments were scheduled to be reduced by as much as half.
The judges, in Kansas and Missouri, issued separate preliminary injunctions this week, leaving the SAVE plan’s eight million enrollees in limbo until lawsuits, filed in the spring by two groups of Republican-led states seeking to topple the program, are resolved. The Justice Department recently filed a request on behalf of the Education Department to stop the Kansas injunction.
“If the injunction takes effect,” the filing said, “it will inflict irreparable harm on the federal government in the form of unrecoverable disruption costs and create extraordinary confusion and chaos for borrowers.”
The injunctions affect enrollees in SAVE, which bases their payment amount on their income and household size, in two ways. The Kansas order suspended parts of the program that were not already in place, including a big drop in monthly payments for people with undergraduate debt — to 5 percent of their discretionary income from 10 percent — which was to take effect this Monday. The judge in Missouri blocked any new debt cancellation achieved through the SAVE program, though legal experts say it wasn’t entirely clear how widely that provision should be interpreted.
Now, about three million borrowers who have monthly payments in SAVE will be placed in forbearance, putting their bills on hold.
The Education Department had been recalculating payments for borrowers whose bills were about to be cut, and now it needs time to recalculate them again. Interest will not accrue during this period, but the months in forbearance will not count as qualifying payments toward loan cancellation through SAVE or the Public Service Loan Forgiveness program. It’s unclear how long the pause will last.
The 4.5 million borrowers who currently have zero-dollar payments will continue to be on time with their payments and owe nothing, according to the Education Department, which will notify all affected borrowers in the coming days.
To avoid further confusion, the Education Department said, it will pull down online applications for all income-driven repayment programs, including SAVE, and for loan consolidation as it updates its systems to ensure it’s providing accurate information. The department estimated that this could take four to six weeks.
But borrowers can continue to apply to participate in SAVE and other income-driven repayment plans, as well as for loan consolidation, on paper or via PDF during this time. Servicers will process these applications, and borrowers who are required to make payments will be put in forbearance while their applications are reviewed.
“We applaud the administration for taking immediate action to ensure that the eight million borrowers currently enrolled in SAVE will not be required to make payments, and will be protected from the chaos and certain harm that will come from the two conflicting injunctions,” said Mike Pierce, executive director of the Student Borrower Protection Center, an advocacy group, and Randi Weingarten, president of the American Federation of Teachers, in a joint statement.
The Education Department suggests that borrowers check in regularly with Studentaid.gov for more information, and that they subscribe for updates through its website.
Kirsten Noyes contributed research.
Source Agencies
