Student loan payments are paused for 3 million borrowers. Here’s what to know

Students walk on campus at the University of North Carolina on May 1, 2024, in Chapel Hill.

The Department of Education is pausing student loan payments for roughly 3 million borrowers who were expecting to have lower monthly bills starting July 1.

The pause comes after two federal courts temporarily blocked parts of a student loan repayment plan known as SAVE (Saving on a Valuable Education), launched by President Joe Biden last year.

Two groups of Republican-led states filed lawsuits earlier this year challenging the SAVE plan, arguing that the administration does not have the legal authority to implement the plan. Missouri and Kansas judges issued temporary injunctions last week, halting parts of the SAVE plan while the matter can be fully litigated.

SAVE lowers enrolled borrowers’ monthly payments and provides a faster route to debt forgiveness. It was launched by the Biden administration after the president’s sweeping, one-time student loan forgiveness program was struck down by the Supreme Court last summer.

As a result of the court-ordered injunctions, the Biden administration is blocked from lowering payments by as much as half for some borrowers enrolled in SAVE. That part of the repayment plan was scheduled to be phased in this month. The administration is also not allowed to cancel any more student loan debt under the SAVE plan for now.

The Department of Justice has appealed both injunctions. Here’s what borrowers need to know:

Payments paused for some borrowers enrolled in SAVE

Nearly 8 million people are enrolled in SAVE, and none of them will need to make a payment in July.

Roughly 3 million people will be put in a forbearance, the Department of Education said. During that time, payments will not be required and interest will not accrue.

But borrowers enrolled in the Public Service Loan Forgiveness program, which is geared toward eligible government and nonprofit workers, will not get credit toward student debt relief like they did when payments were paused during the Covid-19 pandemic.

All other borrowers enrolled in SAVE already have a $0 monthly payment. SAVE is an income-driven repayment plan, which calculates payments based on a borrower’s income and family size. Payments can be as low as $0 for people earning $30,000 or less a year.

The Department of Education said it will communicate these updates to borrowers via email within the coming days.

Student debt forgiveness under SAVE halted

Borrowers enrolled in SAVE may be eligible for student debt relief in a shorter amount of time than under other income-driven repayment plans.

Those who borrowed $12,000 or less will see their debt forgiven after paying for just 10 years under SAVE. Every additional $1,000 borrowed above that amount would add one year of monthly payments to the required time a borrower must pay. Under other repayment plans, borrowers must make at least 20 years of payments before receiving debt forgiveness.

To date, $5.5 billion has been canceled for 414,000 people enrolled in SAVE.

But the court’s injunction blocks the Biden administration from canceling anymore student debt under SAVE until the matter is fully litigated.

Online access to SAVE application removed

For the next four to six weeks, borrowers will not be able to access online applications for any income-driven repayment plans, including SAVE, while the Department of Education updates its systems to reflect the court-ordered injunctions.

Borrowers can continue to submit paper or PDF applications during this time.

The Department of Education said that borrowers should check in regularly with studentaid.gov and subscribe here to receive the latest information.

How does SAVE work?

Like existing income-driven repayment plans, SAVE offers lower monthly payments for people with lower incomes. But the SAVE plan offers the most generous terms.

SAVE lowers monthly payments in two ways compared with other federal student loan repayment plans.

First, it recalculates discretionary income so that it’s equal to the difference between a borrower’s adjusted gross income and 225% of the poverty level. Existing income-driven plans calculate discretionary income as the difference between income and 150% of the poverty level.

Under most income-driven repayment plans, borrowers are required to pay 10% of their discretionary income. But before the court-ordered injunction, borrowers enrolled in SAVE were expecting to see those payments cut by as much as half.

Payments on loans borrowed for undergraduate school will be reduced from 10% to 5% of discretionary income. Borrowers who have loans from both undergraduate and graduate school will pay a weighted average of between 5% and 10% of their income based upon the original principal balances of their loans.

The SAVE plan also prevents balances from ballooning due to interest when a borrower has a small monthly payment. If enrolled in SAVE, unpaid interest does not accrue if a borrower makes a fully monthly payment. For example, if $50 in interest accumulates each month and a borrower’s full required payment is just $30, the remaining $20 would be waived.

Confusion for borrowers

The court injunctions impacting the SAVE plan come at a time when many borrowers were already experiencing issues with their student loan payments – which resumed last fall after a three-plus year pause during the Covid-19 pandemic.

Some borrowers were recently put in an administrative forbearance because their accounts were being transferred from one loan servicer to another. Others were being put in a forbearance because the recalculation of their payments under SAVE had not been completed yet

“This may just be politics to the leaders of Missouri and Kansas, but for 40 million people trying to manage their student loans, it’s chaos,” Abby Shafroth, co-director of Advocacy at the National Consumer Law Center, said in a statement.

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