Over the past few years, student loan borrowers, loan servicers, and financial professionals who specialize in student loan repayment have faced a whirlwind of changes and uncertainty.  Things will be slowing down, and a return to normal student loan repayment will occur.  The problem for many borrowers is that it may increase their monthly payments or affect their credit score.

Here is a list of current issues that have been announced over the past few weeks.  This information is good news for borrowers and student loan professionals, as we have some clarity.  For some, this is bad news since repayment forbearance periods will be ending, and normal student loan processing rules will be back in place.  Over the past five years, different programs have allowed many student borrowers to avoid repayment.

Access to Income-Driven Repayment (IDR) Methods and Processing is Beginning

Due to the SAVE lawsuit, access to enrolling in any IDR method was inaccessible.  In mid-April, access to these repayment methods became available.  A lawsuit by the American Federation of Teachers may have pushed the administration to reopen the enrollment process.

Since the SAVE lawsuit was not resolved, access to enrollment was periodically open and closed.  The Department of Education (DOE) and the loan servicers recommended IDR enrollment, but the applications were not being processed.  The non-processing was not disclosed to the borrowers until later in the year.  The borrowers affected the most were those pursuing Public Service Loan Forgiveness (PSLF), since, under the SAVE forbearance, PSLF credit could not be earned since no payments were being made.

The DOE announcement states that the application will start processing by May 10.  We have seen that some clients have received notice that their applications have been processed, and payments will begin in September.  However, there is a significant backlog at this time, so it is unclear how quickly they can process the current applications.  As a point of reference, over 8 million borrowers enrolled in SAVE, and these borrowers will most likely need to change methods.

Changing IDR Repayment Methods Concerns

You can now apply to change IDR methods, which may result in significantly increased monthly payments.  There are three reasons why your monthly payment could increase.  The first is that the SAVE repayment method was more generous than the previous IDR methods.  It used a 225% discretionary allowance rather than the more common 150% allowance.

The second is updating the borrower’s current income.  Due to COVID, income recertification was not done and will not restart until early 2026.  Many borrowers’ IDR monthly payments are based on their 2019 income.  As part of the IDR application, the borrower will need to submit a form of current income, such as a pay stub, W2, or tax form.  For most borrowers, this will result in an increase in their monthly payment.

The last is the borrowers with older loans.  If your loans are all before October 2011, then you were likely enrolled in REPAYE.  SAVE replaced REPAYE, and it is still not available.  For borrowers in this situation, a 10% IDR option is not available.  The only option will be the old IBR method, which uses a 15% allocation in its calculation.

Initial Confusion Regarding Tax Filing Status

The initial DOE announcement was unclear about the tax filing advantage of filing married and separate.  This was clarified the next morning, and the advantage is still available.  Many news agencies and bloggers reported this initial concern.  We also corrected our initial reporting.

The only exception to the married and separate tax filing advantage is the original REPAYE rules.  SAVE replaced REPAYE.  If the DOE resets everyone enrolled in SAVE to REPAYE, this could also result in an increased repayment amount.

This confusion could be a hint at the future repayment rules that are being discussed.

SAVE Plan Blocked by Court Ruling Update

The 8th Circuit Court of Appeals has upheld an injunction against the Department of Education’s Saving on a Valuable Education (SAVE) repayment plan, continuing to block its implementation.

The SAVE plan has been blocked since late June 2024.  Borrowers previously enrolled in SAVE have been placed in interest-free forbearance since July 2024.  The court directed the lower court to strengthen and broaden the injunction.  The IDR forgiveness applications under the SAVE, REPAYE, PAYE, and ICR plans are currently blocked and under review.  Public Service Loan Forgiveness (PSLF) is established separately and not affected by these challenges.  PSLF credits are not earned during this forbearance.

The case returns to the Eastern Missouri Lower District Court for a final ruling.  Pending further legal developments, the fate of the SAVE plan and related forgiveness provisions remains uncertain.

Student Debt Collection Notification and Process Will Restart in May

The Trump administration has announced new debt collection efforts targeting student loan borrowers who are in default or delinquent.  This could impact over 9 million student loan borrowers.  Currently, over 5 million borrowers are more than 360 days past due on their student loans, and another 4 million are delinquent for 90–180 days.

The Department of Education will resume aggressive collection efforts against defaulted borrowers, with notifications starting May 5, 2025.  The government can garnish up to 15% of wages, social security checks, and tax refunds for defaulted borrowers.  This collection will not start until later this year.

The default notification does allow the borrower to rehabilitate their status through a series of steps.  They must respond to the notice as instructed.

New Rules Hearing Process Begins April 29

The DOE will begin the formal process of negotiated rulemaking on various programs authorized under Title IV of the Higher Education Act of 1965.  This is the same process that was used for PAYE, REPAYE, and SAVE.  The process will include a series of meetings, drafting of the proposed changes, a comment period, and implementation.

The schedule will be tight, as most of these activities must be completed by November for implementation on July 1, 2026.  The goal here is to simplify the current repayment system.  Based on prior statements, the current rules will be grandfathered in for existing borrowers, and the new rules will only impact borrowers after a specific date.  Some of this may need to change based on the outcome of the SAVE lawsuit.

Student Loan Normalization Summary

We can only hope that during the next few months, there will be more clarity on the student loan repayment playing field.  As student debt levels continue to climb and repayment options become more complex, PayForEd will be here to help you navigate your options.