KEY TAKEAWAYS
- The Department of Education closed all online applications for Income-Driven Repayment (IDR) plans and loan consolidation.
- This was likely in response to a lawsuit challenging the Department of Education’s authority to develop repayment plans that forgive student loans.
- Borrowers enrolled in SAVE may be moved to a different repayment plan, and borrowers under ICR and PAYE would not receive loan forgiveness under their payment plan if the court decided the Secretary and Department of Education did not have the authority.
The Department of Education closed online applications for income-driven repayment plans, but it’s unclear what that means in the long term for borrowers already enrolled in those plans.
The department took down the online applications on the Federal Student Aid website last week. However, the paper application is still available to download, and borrowers can still mail it in. Still, new borrowers will likely face a delay in the application’s processing, said Betsy Mayotte, president of The Institute of Student Loan Advisors.
The online application shutdown shouldn’t affect borrowers currently enrolled in SAVE, Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), or Pay As You Earn (PAYE) plans unless their repayment plan needs to be recertified. If their date of recertification happens when the online applications are down, they might get an extension on their recertification deadline, Mayotte said.
This action was likely in response to the 8th Circut Court of Appeals’s decision to uphold a preliminary block on the SAVE plan. The decision sided with the states that argued neither the Secretary of Education nor former President Joe Biden had the authority to implement a repayment plan like SAVE that led to loan forgiveness.
What Does This Mean For The Future of IDR Borrowers?
Borrowers enrolled in the SAVE plan have been in forbearance since July, when two lawsuits temporarily blocked the repayment plan. However, borrowers who have been held in limbo could soon get clarification.
The appeals court action only upheld a temporary block, and the lawsuit will now be returned to the lower court. However, President Donald Trump’s administration could choose not to defend the plan in court.
If the states win the lawsuit or Trump chooses not to defend the plan, SAVE plan borrowers may be told to pick a new IDR plan or enter into a standard repayment plan, Mayotte said. However, the lawsuit will not affect borrowers who are on track to receive forgiveness through Public Service Loan Forgiveness (PSLF) or who have already received forgiveness from PSLF or a repayment plan.
Borrowers under ICR and PAYE likely would still be able to repay but may not receive forgiveness under the plans because of the questions raised in the lawsuit. For this reason, Mayotte said borrowers who want to receive forgiveness under a repayment plan may want to switch to IBR. Since Congress wrote IBR and its loan forgiveness into federal law, it is unlikely to be unraveled, she said.
“Let’s say you’ve been on ICR for 24 years, and now you switch to IBR, you’d still only have a year left before you get forgiveness,” she said. “It wouldn’t reset the count.”
Congress could step in and decide to combine all IDR plans, effectively making the lawsuit irrelevant for future borrowers. Members of Congress have talked about simplifying IBR plans by eliminating all of them and creating a new one. This would only affect borrowers who took out loans after the date of enactment, but current borrowers under ICR, PAYE, or SAVE could choose to be placed into this new repayment plan.