Why Two Old Student Loan Repayment Plans Are Coming Back From The Dead

The ongoing legal battle over student loan forgiveness has forced the Department of Education to revive a pair of federal student loan repayment plans it had phased out earlier this year.

Later this fall, borrowers will once again be able to enroll in the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR), a spokesperson for the department said in an email this week. Enrollment in the two plans had been discontinued due to the introduction of the Saving for a Valuable Education (SAVE) plan, which offers more generous repayment terms than older plans.

However, the future of the SAVE plan was thrown into doubt in July when the Eighth Circuit Court of Appeals ordered student loan forgiveness be paused. The judge in the case sided with a group of Republican-led states that sued in federal court to overturn SAVE.

Goal is To Give More Options to Borrowers

The revival of PAYE and ICR is meant to give more options to the 8 million SAVE borrowers who are currently not required to make any payments. The department paused payments and interest immediately after the ruling, giving borrowers in limbo a financial break while the legal battle plays out.

However, the pause was a setback for some borrowers, including people enrolled in Public Service Loan Forgiveness programs who can have the remaining balance of their loans forgiven after making 120 monthly payments while working for a government or nonprofit organization.

The ICR plan, introduced in 1994, and the PAYE plan, created in 2012, work similarly to SAVE but require higher monthly payments.

Borrowers enrolled in SAVE who are nearing the end of their repayment term for PSLF now have a few options if they want to complete their required payments and clear their debts.

• Borrowers can “buy back” months of credit, making payments for months when their loans were in forbearance or otherwise weren’t eligible to receive credit. The department is working on streamlining the process for doing this, the spokesperson said.
• Later this fall, borrowers will be able to switch to PAYE or ICR repayment plans. 

SAVE Borrower Payments Paused at Least 6 Months

The department said SAVE borrowers can expect their payments to continue to be paused for at least another six months while the legal process plays out.

The case could end up in the hands of the Supreme Court, which last year overturned President Joe Biden’s program to forgive student loans for a broad group of borrowers.

In the meantime, the department said it, as well as the student loan servicing companies, were updating their systems to comply with the court’s order to stop forgiving loans under SAVE, PAYE, and other income-driven repayment plans. The court order did not apply to forgiveness under PSLF, which the department has continued issuing.