The Biden administration is preparing to reopen access to two critical programs in December that will provide additional paths to eventual student loan forgiveness.

Millions of debtors since August we are stuck in uncertainty As a result of a court battle over the SAVINGS plan. SAVE, one of the Biden administration’s major initiatives to reduce the burden of student debt, is the newest income-driven repayment (or IDR) plan. The program lowers monthly payments, waives excess interest, and allows student loan forgiveness after 10 to 25 years of repayment, depending on the loan type and original balance. The SAVINGS plan is also a repayment plan eligible for Public Service Loan Forgiveness; PSLF provides debt cancellation in as little as 10 years for borrowers who pursue nonprofit or government careers while meeting other program requirements.

As part of the SAVE scheme implementation, current regulations phased out new enrollments in two legacy IDR schemes: Pay As You Earn (referred to as the PAYE scheme) and Income Contingent Repayment (known as the ICR). This is designed to simplify the complex IDR system that has multiple repayment plan options. But with SAVE blocked by ongoing litigation and PAYE and ICR phased out, many borrowers now have far fewer options for student loan forgiveness than they did a few months ago.

To address this issue, the Department of Education this week issued an interim rule that, when implemented, will reopen enrollment in PAYE and ICR plans and offer some additional options to borrowers who want to continue moving toward PSLF or IDR loan forgiveness.

Student Loan Forgiveness and Lower Payments Blocked for SAVINGS Plan

In August, the 8th Circuit Court of Appeals issued an injunction preventing the Department of Education from implementing the provisions of the SAVE plan. This includes student loan forgiveness, interest subsidies, or reduced payments under the SAVINGS plan formula. As a result of the precautionary decision, millions of debtors were arrested. to tolerate.

Even though no payments are due and interest is not accrued during the period, this period does not count toward student loan forgiveness under IDR or PSLF. In addition, the Department of Education was forced to pause all IDR proceedings, including other IDR plans, to ensure compliance with the 8th Circuit’s order. As a result, millions of debtors are effectively stuck. However, the Department of Education has stated that IDR processing will resume soon, possibly offering borrowers the opportunity to switch to a different IDR plan and get back on track with student loan forgiveness.

PAYE and ICR Plans Qualify for Student Loan Forgiveness Under PSLF and (For Now) IDR

With the phaseout of PAYE and ICR plans, most borrowers stuck in SAVINGS plan forbearance have only one option if they want to continue making progress toward loan forgiveness under PSLF or IDR: an Income-Based Repayment, or IBR, plan.

The IBR was created by Congress in 2007 (and expanded in 2010) and so is not subject to the same kind of legal challenges that have hobbled the SAVE plan and some of the Biden administration’s other debt relief initiatives. Like all IDR plans, IBR uses a formula applied to the borrower’s income and family size, and the remaining balance can be loan forgiven after 20 or 25 years. IBR is also a plan eligible for PSLF.

However, IBR can be much more expensive than SAVE and has the advantage of minimum interest. In addition, IBR has a “partial financial hardship” requirement that can limit new enrollments by borrowers if their income is too high. This means borrowers who were previously enrolled in other IDR plans and then switched to the SAVINGS plan may now be barred from continuing to seek loan forgiveness if they make too much money to qualify for IBR.

The aim of the resurgence of PAYE and ICR is to solve this problem. “For borrowers who prefer to make payments while SAVE remains blocked” – “such as borrowers pursuing PSLF or low-income borrowers who do not owe monthly payments – enrolling in PAYE or ICR may be an option to consider,” the department says. updated guide.

What Borrowers Pursuing Student Loan Forgiveness Need to Know About the Reopening of ICR and PAYE Plans

Directorate of National Education on Friday issued an interim rule Reopening access to PAYE and ICR schemes.

“This rule is narrow in scope,” says the department summary accompanying the interim rule publication in the Federal Register. “This simply revises the end date for most borrowers to enroll in ICR or Pay As You Earn plans to between July 1, 2024 and July 1, 2027. This time-limited change to eligibility restrictions, which takes effect on July 1, 2024, reduces repayment plans that would otherwise be available to borrowers in an Agreement The preliminary injunction was granted by the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit) while undertaking the necessary administrative changes to comply with the requirements of the Department.

The rule is expected to come into force within 30 days, meaning borrowers will be able to apply for PAYE and ICR by mid-December.

Uncertainties Continue Regarding Student Loan Forgiveness Under PAYE and ICR Plans

While the reopening of PAYE and ICR schemes is good news for borrowers seeking student loan forgiveness, there is still uncertainty on the horizon.

8th Circuit is being discussed Whether student loan forgiveness is allowed At the end of their 20 or 25 year tenure under PAYE and ICR. While the current legal challenge technically relates only to the SAVE scheme, the PAYE and ICR schemes were created using the same legal authority under the Higher Education Act, which is currently under review. The Biden administration argues that the Act’s legislative history, as well as 30 years of regulations, loan agreements, and bipartisan Education Department guidance, are clear: borrowers must qualify for loan forgiveness under these plans after meeting their IDR repayment obligations. But opponents, led by Republicans, argue that the 1993 provision of the Higher Education Act is unclear about whether loan forgiveness is authorized by Congress for these programs.

Therefore, the future of PAYE and ICR plans may depend on the scope of the 8th Circuit decision expected in the coming months. While it is possible for PAYE and ICR to be canceled entirely, another possibility is for the plans to remain intact, but for those plans to have loan forgiveness canceled after 20 or 25 years. In these circumstances, payments made under PAYE and ICR should count towards loan forgiveness for PSLF as well as under IBR. But the future of these plans may depend on the 8th Circuit.

There is also the possibility that the incoming Trump administration will take steps to reverse the Biden administration’s interim rule to reopen access to PAYE and ICR. That could leave borrowers with only a narrow window of time to try to sign up for student loan forgiveness under IDR or PSLF, either toward the end of this year or very early in 2025.