What You Need to Know About the SAVE Lawsuit and Your Student Loan Forgiveness

At Student Loan Tutor, we’re here to manage your student  loan process every step of the way. If you’re a client, you don’t need to take any action at this time. This blog post is simply to keep you informed on the latest developments related to the SAVE (Saving on a Valuable Education) plan,  Income-Driven Repayment (IDR) options, and student loan  forgiveness.  

Understanding the Current Situation: What’s Happening with SAVE?

As of the most recent update from the Department of Education, the SAVE plan and its associated student loan forgiveness features remain in place. However, there are some temporary changes due to a lawsuit that has impacted the program’s rollout. Here's what you need to know. 

The SAVE Lawsuit: What You Should Be Aware Of

The current situation stems from a legal challenge that started with the 8th Circuit Court’s preliminary injunction. This injunction, filed on August 9, 2024, blocked new provisions of the SAVE plan that were set to go into effect in July 2024. These provisions would have introduced changes  to payment amounts and forgiveness criteria. As a result, all borrowers who were slated to enter SAVE will be temporarily paused from receiving its benefits while the litigation plays out. 

A recent hearing on October 24, 2024, brought to light concerns that the forgiveness features of plans like PAYE, SAVE, and ICR (Income-Contingent Repayment) may lack specific Congressional approval, especially beyond the Income-Based Repayment (IBR) plan. However, the good news is that borrowers on IBR are still eligible for loan forgiveness on the remaining balance of their loans after  20-25 years of qualifying payments, though that forgiveness will be taxed as ordinary income. 

For now, SAVE, PAYE, and ICR are in an interest-free forbearance while the case continues, and borrowers who were in one of those plans before the lawsuit can opt to switch to IBR to preserve their path to forgiveness after 300 qualified on-time payments. 

What Does This Mean for You?

• No Action Needed from You:
  As a client of Student  Loan Tutor, we are actively managing your account and will continue to do so as usual. You don’t need to take  any immediate steps unless we reach out to you directly.
  
  
• Current SAVE Borrowers:
  If you are currently enrolled in the SAVE plan, you are in an Administrative Forbearance status. This means you don’t have to make any payments right now, and interest is not accruing on your loan. However, these months are not counting toward Income-Driven Repayment (IDR)  forgiveness or Public Service Loan Forgiveness (PSLF) at this time.
  
  
• For New SAVE Applicants:
  If you’re a new applicant to SAVE, you will be placed into a 60-day processing forbearance. Interest will accrue during this time, but once your loan moves into the general forbearance at 0% interest, you will not be required to make payments. However, it’s important to note that the months spent in forbearance are not counting toward your PSLF. 

What’s Changing in the SAVE Plan?

Due to the legal challenges, the SAVE plan is effectively reverting to its original terms from July 2023. Here’s what that means: 

1. Monthly Payments:
   Your monthly payments will be set at 10% of your discretionary income (income above 225% of the federal poverty guidelines).
   
   
2. Repayment Periods:
   If you have graduate loans, your repayment period will be 25 years. If you have undergraduate loans only, your repayment period will be 20 years.
   
   
3. Future Provisions Delayed:
   Some of the more significant provisions that were set to take effect in July 2024 are no longer in place. These included:
   
   
   • A reduction in monthly payments from 10% to 5% on undergraduate loans only.
     
     
   • A provision for 10-year forgiveness for borrowers who have $12,000 or less in student loan debt. 

These new changes will not apply until further legal decisions are made. 

What About Your Forgiveness Timeline?

While the current pause on SAVE doesn’t change your forgiveness timeline, it’s important to note that the months you spend in forbearance right now are not counting toward IDR forgiveness or PSLF. However, once the legal issues are resolved, the months in forbearance may be counted  toward PSLF if you are eligible for that program.

For borrowers who have already reached 120 months of eligible PSLF employment, you will be able to "buy back" any months spent in forbearance at the same rate you were paying during those months. If you had $0 payments during the forbearance period, buying back those months will cost you nothing. 

Likely Outcome and Timeline

Although there are delays in the system due to the ongoing legal challenges, we remain optimistic that the situation will be resolved in the coming months. We believe it’s unlikely that the new SAVE provisions will ultimately pass. However, this doesn’t affect your current loan strategy, and you don’t need to make any changes at this time. 

• What We Know So Far:
  In October 2023, the Senate  approved the SAVE plan in its original form, but the new provisions have faced resistance. The 8th Circuit Court is working to expedite its decision, and the Supreme Court is also involved, with a decision expected soon.
  
  
• Processing Delays:
  Loan servicers are experiencing delays of 60+ days in processing changes to IDR plans, so we advise against switching plans at this time. This could delay your eligibility for PSLF buyback opportunities.

In Conclusion

We will keep you updated on any developments that may impact your loan strategy or forgiveness timeline. 

For now, you don’t need to take any action. Payments are paused, no interest is accruing, and your path to student loan forgiveness remains intact—pending final court rulings. 

We will continue to monitor the situation closely and ensure you’re on the best possible plan for long-term savings. If you have any questions or need clarification, please don’t hesitate to reach out. We're here to support you at every step. 

Stay tuned for more updates, and thank you for trusting Student Loan Tutor to manage your student loans.