In the United States, the Department of Education recently closed applications for all IDR plans. As of now, it is unclear how long IDR applications will remain unavailable, said Elaine Rubin, a student loan policy expert.
While IDR applications are shut down, individuals can still check their eligibility and expected monthly payment options by utilizing the loan simulator at StudentAid.gov. Other IDR plans currently provide monthly payments that are higher than SAVE, but likely lower than the standard student loan repayment plan.
Student Loans Repayment Plans
In President Donald Trump’s recent work to shrink the Department of Education, the agency has eliminated all four of its most affordable federal student loan repayment plans.
The move comes two weeks after a U.S. appeals court expanded an order to block the Biden-era income-driven loan repayment program commonly known as Saving on a Valuable Education (SAVE) for three months, compelling borrowers to switch to another program.
These four suspended IDR plans promised lower monthly payments to borrowers and provided a faster route for loan forgiveness. Now, borrowers can select only more expensive repayment plans. The agency also confirmed that it will not approve or process applications for any of the programs during the pause term.
What type of student loan repayment plans have been suspended?
The Department of Education announced the suspension of all four of the income-driven student loan repayment plans: Income-Contingent Repayment, Pay as You Earn, Saving on a Valuable Education (SAVE), and Income-Based Repayment.
Income-driven student loan plans offered borrowers case-specific repayment plans based on their total income and family members.
These plans were basically designed to lessen the burden of student loans, extend the repayment period from the standard 10 years to 20 or 25 years, and ensure the forgiveness of the leftover debt at the end of the repayment period. They also allowed adjustments if any changes occur in borrower’s economic status.
When will student loan payments continue?
The U.S. The Department of Education has not provided any proper guidance to the borrowers on how long the IDR processing can be paused. But, according to the court’s injunction the pause of process will last in 90 days (Equivalent of three months).
However, an unexpected delay can occur for providing access to affordable repayments plans and student loan forgiveness. As of now, it is unclear what will happen with the Student loans repayment plans.
A student loan policy expert said that unfortunately, borrowers who are looking to take a part in a repayment plan to better manage their monthly payments will not be able to submit an application until they are back.
What do borrowers need to do if they are enrolled in SAVE?
As the SAVE plan suspension is still in effect. So, it is expected that during this stressful period, individuals do not need to resume payments until this forbearance will not end. It is also anticipated that interest will not accrue.
Individuals need to start preparing for the higher payments (possibly double of your current payment) after switching plans. It is because it can be required if the SAVE Plan is dismantled.
If you want to receive loan forgiveness even after 20-25 years, it is suggested that you switch to the Income-Based Repayment (IBR) plan once its application process restarts. Keep in mind that it is the only IDR plan that is still providing forgiveness at the end of an individual’s repayment term.
Student loan expert Mark Kantrowitz stated that, Payments that an individual made in the SAVE repayment plan likely counts for forgiveness under IBR. But, it is important to know that there will be no new forgiveness under the SAVE repayment plan.
What will happen to student loans if the Department of Education is dismantled?
United States President Donald Trump has not been afraid to dismantle the Department of Education. It is a part of his central battle in shrinking the size of the U.S federal government.
From Linda McMahon, the newly-installed Secretary of the Department of Education, it was asked that if she believed that the country needed an Education Department, she clearly replied “no, we don’t.”
McMahon said, I believed that student loans and grants will be better served in another department. The Treasury Department can assume control over the distribution of federal Pell Grants and student loans repayment plans after the Department of Education is dismantled.