3 Ways PSLF Borrowers Can Get Student Loan Forgiveness Credit During the SAVE Plan Forbearance

Earlier this month, a federal appeals court ordered the Biden administration to halt the implementation of the Saving on a Valuable Education (SAVE) plan. This new income-driven repayment (IDR) plan features reduced payments, an interest subsidy to prevent runaway interest, and accelerated student loan forgiveness for certain borrowers.

Despite the court's order, eight million borrowers have already enrolled in SAVE. The Education Department announced that these borrowers would be placed into a temporary forbearance starting in August, during which no payments will be due, and no interest will accrue. However, this forbearance will not count toward student loan forgiveness under IDR plans or Public Service Loan Forgiveness (PSLF).

This article explores three ways PSLF borrowers can still get student loan forgiveness credit during the SAVE plan forbearance:

• Switch to a different IDR plan to qualify for PSLF
• Switch to the 10-year Standard plan to qualify for PSLF
• Stay in the SAVE plan forbearance and use the PSLF buyback option

Legal challenges to the SAVE plan

The temporary order, issued as the court considers a broader (and potentially more impactful) preliminary injunction, is in response to dueling lawsuits brought by Republican-led states trying to block the SAVE plan. 

• The states argue that the SAVE program is illegal because it exceeds Congressional authority. 
• The Biden administration counters that Congress provided broad discretion for the Education Department to draft rules governing IDR plans, and SAVE falls well within those parameters.

Related: SAVE Student Loan Plan Blocked: 8 Key Takeaways for Borrowers Seeking Relief

Consequences for borrowers enrolled in SAVE plan

Eight million borrowers have already enrolled in SAVE, making it impossible to immediately halt a program of such scale. In response, the Education Department announced last week that it would be placing SAVE borrowers into a temporary forbearance starting in August. During the forbearance, no payments will be due, and no interest will accrue.

However, to many borrowers’ surprise and disappointment, the Education Department indicated that the SAVE plan forbearance would not count toward student loan forgiveness under IDR plans or PSLF. This is a break from past practices by the Biden administration, where many types of mandatory forbearance periods would count toward loan forgiveness under IDR and PSLF. The department did not explain why this forbearance is different, but it could be due to the broad scope of the recent court order.

The nature of the SAVE plan forbearance is particularly concerning for borrowers on track for PSLF, who may not get loan forgiveness credit even while they continue to work in qualifying public service employment. But last Friday, the Education Department identified three ways PSLF borrowers could continue progressing toward eventual loan forgiveness under PSLF, despite the forbearance.  

Option 1: Switch to a different IDR plan to qualify for PSLF

According to PSLF rules, payments under any IDR plan can count towards student loan forgiveness — not just the SAVE plan. Last Friday, the Education Department clarified that borrowers who want to opt out of the SAVE plan forbearance can apply to switch to a different IDR plan.

“Borrowers may apply for the following income-driven repayment (IDR) plans: PAYE, SAVE (previously known as REPAYE), Income-Based Repayment (IBR), and Income Contingent Repayment,” said the department. Under the SAVE plan regulations, both PAYE and ICR had been phased out for new borrowers as of July 1, 2024. But with those regulations now blocked by the court order, these repayment options are available again.

Process of switching plans

The process of switching IDR plans may be fraught. The Education Department has taken down the online IDR application; it’s unclear how long it will be inaccessible, but it could be weeks as the department updates its internal systems to comply with the court order. 

In the meantime, borrowers can apply to switch to a different IDR plan using a paper application, but that process will not be smooth.

“Borrowers should note that, as result of the administrative stay, servicers have temporarily paused processing of IDR applications until we can ensure applications are processed correctly,” says updated guidance. “Borrowers should expect a lengthy delay in processing of applications… We do not currently have an estimate of how long this will take.”

Challenges and considerations

Furthermore, borrowers should carefully consider whether switching to a different IDR plan makes financial sense. In most cases, other IDR plans will be more expensive than SAVE, which could increase monthly payments. For example, a single borrower with an adjusted gross income (AGI) of $65,000 would pay around $260 per month under SAVE, but they could pay upwards of $530 per month under IBR.

Option 2: Switch to the 10-year Standard plan to qualify for PSLF

Borrowers can forgo IDR altogether and instead switch to the 10-year Standard plan. Unlike IDR loan forgiveness, which requires repayment under an IDR plan to make progress toward discharge, the 10-year Standard repayment plan can count toward loan forgiveness for PSLF. 

Switching to this plan should be comparatively easy, as borrowers would not have to contend with the administrative headaches caused by the SAVE plan forbearance and IDR application processing issues. 

Financial viability for borrowers

For many borrowers, the 10-year Standard plan may simply not be a viable option because it’s too expensive. Payments under this plan are calculated based on a total payoff over 10 years, factoring in the loan balance and interest rate; the plan doesn’t consider a borrower’s income. 

So, the example borrower from above with an AGI of $65,000 would pay, say, around $1,150 per month on a loan balance of $100,000 at a 6.8% rate. This is much higher than what she would pay under SAVE (around $260 per month) or IBR (around $530 per month). 

For some borrowers who are just a few months away from qualifying for PSLF, this could be worth it. But for many borrowers, it would not be financially feasible. Furthermore, Direct consolidation loan Standard plans are typically for a term longer than 10 years, which does not qualify for PSLF.

Option 3: Stay in the SAVE plan forbearance and use PSLF buyback option

A third option for PSLF borrowers is to remain in the SAVE plan forbearance and then ‘buy back’ the time. 

Under new PSLF regulations that went into effect last summer, borrowers can make a payment for certain past loan periods that didn’t qualify for PSLF to essentially retroactively count those periods. Payments would be based on what the borrower would have been paying if they had been in a qualifying IDR plan. 

Eligibility criteria and rules

The PSLF buyback program is new, rather complicated, and has strict eligibility rules. First and foremost, borrowers can’t request a PSLF buyback until they have accrued at least 120 months of eligible employment. That means borrowers can’t buy back PSLF months on a rolling basis or in advance (and making voluntary payments during a non-qualifying forbearance does not count). 

In addition, borrowers can’t apply until the bought-back months would complete the borrower’s total of 120 qualifying PSLF payments.

“Currently, borrowers with 120 months of eligible employment can make payments to cover past months that were not counted as qualifying payments because the borrower was in an ineligible deferment or forbearance status,” says Education Department updates. “Borrowers must submit a buyback request and make an extra payment of at least as much as what they would have owed under an income-driven repayment (IDR) plan during the months they are trying to buy back.”

Borrowers interested in learning more about the PSLF buyback program should review the department’s detailed written guidance and instructions. 

What should you do?

While the SAVE plan forbearance poses challenges for PSLF borrowers, potential paths are available, but each has some possible risks and downsides. Borrowers should carefully consider their options and stay informed about the latest updates from the Education Department. For expert guidance specific to your situation, book a student loan consultation.