Education Department reopens suspended student loan repayment applications
The Education Department on Wednesday reopened applications for some of its most affordable student loan repayment plans but offered no timeline for processing them, a move that could create a massive backlog.
The department had shut down an application for all income-driven repayment plans in February after the U.S. Court of Appeals for the 8th Circuit expanded an injunction blocking President Joe Biden’s Saving on a Valuable Education program, commonly known as Save.
That left millions of borrowers unable to access plans that cap monthly payments at a percentage of earnings with the promise of loan forgiveness after 20 to 25 years.
The Trump administration said shutting down the application was necessary to comply with the court order, which said the 1993 statute underpinning Save and two other income-driven plans – Income-Contingent Repayment and Pay as You Earn – did not authorize loan forgiveness. The order, however, did not direct the department to bar borrowers from accessing the two plans or Income-Based Repayment (IBR), which Congress created under a separate statute.
While the Education Department’s use of a single application for all income-driven repayment (IDR) plans complicates access to each plan individually, student advocates argue that the agency could have devised a solution to help borrowers. Last week, the American Federation of Teachers filed a lawsuit against the department alleging that shutting down the application form this past month harmed union members, many of whom are participating in the program Public Service Loan Forgiveness (PSLF).
The loan-forgiveness program, which erases a borrower’s student loan balance after 10 years of payments and public service, typically requires applicants to enroll in an IDR plan. Because the department shelved the plans, people who were already participating could not recertify their earnings as required to remain enrolled, resulting in borrowers being thrown into more expensive plans that in some cases doubled their payments. Enrollees whose financial circumstances changed were also barred from requesting a recalculation of their payments.
After the teachers union filed a temporary restraining order Monday to force the department’s hand, attorneys for the department told the court of its plans to resume accepting applications but stopped short of giving a timeline for processing them.
On the StudentAid.gov website, the department said that loan servicers, the companies that manage the government’s $1.6 trillion student loan portfolio, are “still updating their systems in accordance with the court’s actions” and that “servicers will begin processing applications in the near future.”
The Education Department confirmed Wednesday that borrowers who apply for an IDR plan will be placed in what’s known as processing forbearance. That will postpone their payments for up to 60 days, during which time they still receive credit toward PSLF and IDR. The forgiveness component of most income-driven plans is still paused because of the court order, but the department is encouraging borrowers who have or are close to reaching their 20- or 25-year milestone to switch into IBR to receive forgiveness.
Many PSLF participants have been eager to switch out of the Save plan to another income-driven option to continue making payments and gain credit toward forgiveness. The 8 million people enrolled in Save have been in forbearance for eight months because of the ongoing lawsuit to end the Biden-era program, but the type of forbearance they received does not count toward the forgiveness program.
“All of these people have the right to be in payment plans that count for cancellation, that are affordable, and that’s been denied,” said Persis Yu, deputy executive director at the Student Borrower Protection Center, which is representing the American Federation of Teachers alongside Berger Montague. “Delaying the processing of these applications will only cause more harm.”