About 3 million borrowers with federal student loans will see their monthly payments paused in the coming days as the Biden administration attempts to recalculate their bills to comply with an order from a federal court in Kansas.
The new calculations are necessary because two federal judges temporarily blocked key parts of President Biden’s new student loan repayment program, SAVE, on Monday, just a week before many borrowers’ payments were scheduled to be cut by as much as half.
Judges in Kansas and Missouri issued separate preliminary injunctions this week, leaving the eight million SAVE enrollees in limbo until the 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 request on behalf of the Education Department to halt the Kansas injunction.
“If the injunction goes into effect,” the filing says, “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 precautionary measures affect members of SAVE, which bases the amount of their payment on their income and the size of their household, in two ways. Kansas’ order suspended parts of the program that were not already in effect, including a big drop in monthly payments for people with college debt (from 10 percent to 5 percent of their discretionary income), which was set to take effect Monday. The Missouri judge blocked any new debt cancellation achieved through the SAVE program, although legal experts say it was not entirely clear to what extent that provision should be interpreted.
Now, about three million borrowers who have monthly payments on SAVE will be placed into forbearance, which will suspend their bills.
The Education Department had been recalculating payments for borrowers whose bills were about to be cut, and now needs time to recalculate them. Interest will not accrue during this period, but the months of forbearance 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.
The 4.5 million borrowers currently on zero-dollar payments will remain on time with their payments and will not owe anything, according to the Department of Education, which 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-based repayment programs, including SAVE, and for loan consolidation, as it updates its systems to ensure it provides information precise. The department estimated this could take four to six weeks.
However, borrowers can continue to apply to participate in SAVE and other income-based repayment plans, as well as loan consolidation, in paper or PDF format during this time. Service providers will process these requests and borrowers who are required to make payments will be placed in forbearance while their requests are reviewed.
“We applaud the administration for taking immediate steps to ensure that the eight million borrowers currently enrolled in SAVE will not have to make payments and will be protected from the chaos and certain harm that will arise from the two conflicting court orders,” Mike said. 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 Department of Education suggests that borrowers periodically check Studentaid.gov for more information and sign up for updates through its website.
Kirsten Noyes Contributed to the research.
