Education Dept. Reverses Itself and Reopens Two Loan Repayment Plans

The Education Department reopened enrollment on Friday for two student loan repayment plans it had previously sought to replace. This decision allows borrowers to exit an alternative program, which has been on hold due to litigation since July.https://wordpress.com/

The move reinstates the Pay As You Earn (PAYE) plan, and the Income-Contingent Repayment (ICR) plan, both of which were originally introduced in 2012 and 1996, respectively. These plans had largely closed to new enrollments last year, as the department sought to steer borrowers toward the administration’s Saving on a Valuable Education (SAVE) program.

The Department had prioritized phasing out PAYE and ICR in favor of the SAVE plan, which offered better terms for many borrowers. This shift gained momentum after legal challenges blocked President Biden’s more extensive student debt forgiveness proposals last year.

Riding on the success of those legal rulings, a group of Republican state attorneys general filed lawsuits this year to challenge the legality of the SAVE program, even though millions of borrowers had already signed up, benefiting from much lower monthly payments.

As a result, many borrowers who had enrolled in SAVE have been unable to make payments since this summer, while the litigation surrounding the program continues.

This has also disrupted the Public Service Loan Forgiveness (PSLF) program, which allows borrowers in public service jobs to have their loans forgiven after 10 years of qualifying payments. Many borrowers, including those close to meeting the forgiveness requirements, were unable to count their payments during the litigation freeze.

In its announcement, the department explained that the reopening of enrollment was a temporary measure to “offer borrowers more flexibility with their student loans” while it continues to “vigorously defend the SAVE program in court.”

However, many legal experts predict that the challenges to SAVE may ultimately succeed, especially after the Supreme Court chose not to intervene in the case this year. President-elect Donald J. Trump also seems to support ending the SAVE program and most of President Biden’s student debt policies.

Both PAYE and ICR are income-driven repayment plans, and the department indicated that most borrowers would see lower payments under the PAYE plan. Under PAYE, the first $22,590 of an individual’s income is excluded from the payment calculation, with borrowers paying 10 percent of income above that threshold. In contrast, the ICR plan excludes the first $15,060 of income, requiring borrowers to pay 20 percent of any income above that amount. Both plans offer higher income limits based on family size.

According to the department, loan servicers may continue to place borrowers in forbearance for up to 60 days while processing applications, after which interest will begin to accrue. Most importantly, payments made under these old plans will still count toward loan forgiveness, which is crucial for public service workers hoping to qualify for PSLF.