The Department of Education has directed all student loan servicers, which handle a $1.6 trillion portfolio, to stop accepting and processing income-driven repayment (IDR) plans over the next 90 days, according to a memo obtained by The Washington Post. Student loan borrowers already enrolled in one of the four IDR plans and are making repayments are also barred from recertifying.
The department stated that the application hold could potentially extend beyond three months or end earlier. Only the most expensive repayment plans are available to student loan borrowers—the 10-year standard, graduated and extended repayments.
The department’s recent directive was sparked by a lawsuit filed in April by Missouri and six other Republican-led states that accused former President Joe Biden of overstepping his authority in implementing Saving on a Valuable Education (SAVE), an IDR plan that calculates loan repayment by income and family size and offers a faster timeline to loan forgiveness.
A federal appeals court reviewing the lawsuit expanded the injunction last month, thus implicating all loan forgiveness programs. The ruling found that the underlying statute the Biden administration used to enact SAVE contradicted the original intention of the Higher Education Act, which mandates loans be paid within 25 years. As a result, two other income-driven repayment plans—Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR)—built under the same statue were called into question.
The court permitted the remaining plan—Income-Based Repayment (IBR) Plan—to proceed since it was founded using a different statute. However, the Department of Education disabled online applications to all income-driven repayment plans on its student aid website last week, and its recent memo also directs loan servicers to pause all repayment plans.
More from UB: Campus leaders show cautious optimism in AI, says report
Also in limbo is student loan borrowers’ access to the Public Service Loan Forgiveness program, which assists those working for public and qualifying nonprofit entities to qualify for loan cancellation, according to The New York Times. Most applicants need to also be enrolled in an income-driven repayment plan, which is impossible with the department’s recent memo.
“We will be working for [Federal Student Aid] to implement that transition once courts clear things up and bring some finality, so borrowers can have certainty and confidence in their options now and in the future,” Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for loan servicers, told The Post.
