Student loans are holding borrowers back
A new Gallup poll finds that most student loan borrowers are delaying other major life events due to their debt.
President Joe Biden’s administration has worked to forgive or lower student loan repayments, but now one of the main programs helping millions of Americans is in court and borrowers are in forbearance.
Around eight million people with a Saving On A Valuable Education (SAVE) Plan woke up to an email Friday from companies managing their student loan repayments stating that they were now in forbearance for an undetermined time. And while forbearance isn’t a new program, this mass execution of it is.
An administrative stay was granted by the U.S. Court of Appeals for the Eight Circuit in St. Louis at the end of July, based on a request by Missouri and six other Republican-led states. This stay blocked Biden’s administration from continuing to implement the student debt relief plan, according to reports from USA TODAY.
Here’s what it means and why people on the SAVE plan are now in this situation.
What is the SAVE student loan plan?
This repayment plan was meant to help millions of borrowers repay their student loans off in a way that didn’t devastate them financially.
The income-driven repayment plan allows those in lower income brackets to pay a smaller monthly amount based on what they make and their family size. It also had a higher income threshold to qualify for $0 monthly payments on eligible loans, but it also required just 5% of the borrower’s income after they paid for housing, food, taxes and other necessary bills instead of the typical 10%, according to reports from Forbes.
SAVE also paved the way for student loan forgiveness. Borrows who paid on undergraduate loans for 20 years and/or graduate loans for 25 years could have whatever was still owed on the loan after that time cleared.
What is forbearance?
When it comes to student loans forbearance is when you don’t have to make a payment, or you can temporarily make a smaller payment during a certain time period, according to the Federal Student Aid Department with the Department of Education.
In most cases, borrowers need to apply to get a forbearance, but in this case, the Biden administration froze payments as legal battles around the SAVE plan continue.
“Borrowers enrolled in the SAVE plan will be placed in an interest-free forbearance while our administration continues to vigorously defend the SAVE plan in court,” Miguel Cardona, the secretary of education, said in a statement in July. “The Department will be providing regular updates to borrowers affected by these rulings in the coming days.”
Why is the SAVE plan in court?
The income-driven repayment plan implemented by the Biden administration in 2023 met with stark criticism from Republicans. Soon Republican states were taking the SAVE plan to court
In June, two federal judges in Kansas and Missouri blocked the administration from further implementing the student debt relief plan. These two decisions blocked part of the SAVE plan.
In July, seven state attorney generals led by Missouri Attorney General Andrew Bailey asked the 8th Circuit to block the rest of the SAVE Plan. The court did so through a one-page order granting an administrative stay, according to USA TODAY reports.
Bailey on the social platform X hailed the ruling as a “huge win for every American who still believes in paying their own way.” He said the student loan plan “would have saddled working Americans with half-a-trillion dollars in Ivy League debt.”
When do I have to start paying on my student loans again?
Right now, there is no set date for when the forbearance will end and when people will once again have to start paying back their student loans.
