In the midst of a years-long legal effort to forgive and alleviate student loan debt, the Biden administration has placed roughly eight million student loan accounts in an interest-free forbearance status.
Student Loans in Forbearance Pending Legal Action
Millions of borrowers were surprised this week to find email notifications from their student loan servicers informing them that their loans had been placed into forbearance. Americans enrolled in the Saving on a Valuable Education (SAVE) repayment plan were affected.
Forbearances Affecting Millions
Despite borrowers taking no action toward a forbearance, account statuses were automatically changed. There is no word on how long the forbearance will last.
Servicers Notify Borrowers of Change
“On July 18, 2024, a federal court issued a stay preventing the Department of Education (ED) from operating the Saving on a Valuable Education (SAVE) Plan,” read the email from Nelnet, a national student loan servicer. “As a result of this ruling, ED has directed Nelnet to put your account into a forbearance.”
How the SAVE Plan Helped Borrowers
Under the SAVE Plan, student loan payments were calculated based on borrowers’ income. For many borrowers, their calculated payment was $0 per month, but each passing month still counted as a qualified payment toward their account.
A Path to Loan Forgiveness
This process would allow low-income Americans with student loan debt to qualify for loan forgiveness based on years of payments even without making payments they could not afford. After a specified number of years of payments, remaining loan balances could be forgiven.
Republican Backlash
But Republicans in several states fought back against the SAVE Plan, challenging its legality and challenging the repayment plan in court. A Missouri-led effort to cancel the SAVE Plan was granted by a federal judge.
Biden Promises to Keep Working
The Biden administration says it is not giving up, and promises to do what it can to overturn the ruling.
Forbearance Pauses Interest on Affected Loans
“Borrowers enrolled in the SAVE Plan will be placed in an interest-free forbearance while our administration continues to vigorously defend the SAVE Plan in court,” said Secretary of Education Miguel Cardona.
Updates to Come as Available
Cardona says that affected borrowers will continue to receive updates as they are available. At present, no time frame has been given that indicates how long the forbearance could last.
Experts Speak to the Press
Mark Kantrowitz, author and financial aid expert, told CNBC that the time period is anyone’s guess.
No Word on Time Frame
“It is difficult to say how long the forbearance will last,” said Kantrowitz. “Maybe months or even a year.” He also made sure to point out that borrowers need not worry about any impact to their accounts.
“Borrowers Do Not Lose Anything”
“Borrowers do not lose anything because of the pause other than time,” he said.
Servicers Clarify Details of Pause
The notification from Nelnet clarified several important pieces of information for those affected by the forbearance, including reiterating Cardona’s assurance that interest will not continue to accrue on affected loans.
No Credits Toward Forgiveness
“You will not receive credit toward IDR (income-driven repayment) forgiveness and Public Service Loan Forgiveness (PSLF) for the month(s) covered by the forbearance,” said the notice.
Borrowers Will Receive No Refunds
Borrowers who have already made their payment for this month will not be refunded, but the payment will “go toward satisfying your future payment(s).”
Other Payment Plan Options Available
The servicer also explained that for borrowers who do not want their accounts to be in forbearance, there are options. In order to continue making qualified payments on student loan accounts, borrowers can contact their servicer to request a different repayment plan.
Biden Responds
President Biden wrote on social media that he is still focused on eliminating student debt for Americans despite the legal challenges currently blocking his efforts.
Biden Administration’s Student Loan Efforts
“In three years, my Administration canceled student debt for nearly 5 million borrowers through various actions, made the largest increases to the Pell Grant in a decade, and fixed Income-Driven Repayment so borrowers get the relief they are entitled to,” Biden wrote.
“I’m Not Done Yet”
“I’m not done yet,” he promised.
Remote No More: 19 Companies Returning to the Office
As the pandemic wanes, companies are recalling remote workers back to the office, sparking debates on fairness, costs, and convenience. However, there are also notable productivity, coworking, and mental health benefits to consider. Feeling the effects of these changes? Remote No More: 19 Companies Returning to the Office
8 Costco Must Buys and 8 to Leave Behind
Ever wandered Costco’s aisles, questioning if that giant jar of pickles is a real bargain? Or debated buying tires where you get your rotisserie chicken? Welcome to the definitive guide to Costco shopping—a journey to save money, prevent regrets, and offer quirky insights into bulk buying. 8 Costco Must Buys and 8 to Leave Behind
23 Reasons Texas Is the Next Big Thing
Texas is becoming a beacon of opportunity, blending cultural heritage with economic growth. From its landscapes to its industries, the Lone Star State offers a dynamic lifestyle. Here are 23 reasons why Texas stands out, attracting entrepreneurs, artists, tech professionals, and families seeking new beginnings. 23 Reasons Texas Is the Next Big Thing
Featured Image Credit: Shutterstock / Ben Von Klemperer.
The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
