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By Suzanne Blake
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Student loan borrowers will have two more options in December after President Joe Biden reopened two debt forgiveness paths, according to Forbes on Friday.
While Biden's Saving on a Valuable Education (SAVE) plan is in a state of uncertainty as it faces court challenges, two other income-driven repayment plans will open for borrowers next month who want to work their way toward the end of their debt or even full loan forgiveness.
While the legality of SAVE remains unclear, it lowered monthly payments and got rid of high interest for millions of borrowers. It also offered full student loan forgiveness after 10 to 25 years of payments. But when SAVE was implemented, it phased out new enrollments in the older income-driven repayment plans Pay-As-You-Earn (PAYE) and Income-Contingent Repayment (ICR).
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That's no longer the case because with SAVE in jeopardy, Biden's Department of Education (DOE) will once again allow borrowers to sign up for the two plans.
"PAYE and ICR plans were around prior to the introduction of SAVE under the Biden Administration, but were ultimately combined into the SAVE umbrella," Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
He added: "With the SAVE plan currently suspended as it continues to make its way through the court system, the administration is planning to reintroduce those former plans in order to help students who would have qualified for them."
During Biden's administration, the DOE provided $175 billion in student loan forgiveness for roughly 5 million people.
"As the Department continues to defend the SAVE plan in court, it is taking action to ensure borrowers have options to repay their loans—especially those seeking Public Service Loan Forgiveness—while the litigation continues," a spokesperson for the DOE told Newsweek.
"The interim final rule ensures the Department can meet its statutory obligation under the Higher Education Act to let borrowers make payments on an income contingent repayment plan. It does this through a stopgap measure that reopens enrollment for borrowers in two other repayment plans, Income Contingent Repayment (ICR) and Pay As You Earn (PAYE). We will provide more information when the Department is ready to begin enrolling new borrowers in these plans."
SAVE was originally put on hold by the 8th Circuit Court of Appeals in August, putting millions of borrowers in forbearance. That meant they didn't have payments due, and no interest built, but they also couldn't work toward paying off their loans or get any closer to student loan forgiveness.
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Under the rules at the time, borrowers could wait and see what happened with SAVE or choose the only other income-driven repayment plan, the Income-Based Repayment (IBR) plan.
The IBR also takes into account borrowers' income and family size and allows some to achieve debt forgiveness after 20 or 25 years. However, it ends up costing borrowers more and has less benefits regarding interest.
Now that PAYE and ICR are available, borrowers can begin working toward forgiveness again on a 20-to-25-year timeline.
"For borrowers who are eligible for PAYE but not IBR for new borrowers, this is a big development and an opportunity to potentially lower their monthly bill and start making progress toward forgiveness," Michael Lux, an attorney and founder of the Student Loan Sherpa, told Newsweek.
Those with loans can start taking advantage of the two new options in 30 days, beginning in mid-December.
"With long-term interest rates remaining high, borrowers making only minimum payments are finding it increasingly difficult to stay afloat," Kevin Thompson, a finance expert and the founder and CEO of 9i Capital Group, told Newsweek. "Reopening these programs helps address inequities in the student loan system while offering much-needed relief."
While Beene said the two new options are good news for borrowers, it's also likely that the programs are short-lived.
"The Trump administration has opposed most efforts for similar programs. The reintroduction will provide relief for borrowers, but how long that relief will last is to be seen," he added.
President-elect Donald Trump has made it clear he was against Biden's attempts to forgive student loans over the years.
During his debate against Vice President Kamala Harris in September, Trump attacked Biden and Harris for failing to deliver on their promise to cancel student loans. He called the administration's initial plan for widespread student debt cancellation a "total catastrophe" and said it would have been "unfair" to the millions of Americans who did repay their loans.
During Trump's first term, his administration pushed for monthly payments to increase from 10 to 12.5 percent of borrowers' discretionary income and also wanted to merge all income-driven repayment plans into one simplified option.
With Trump back in office, it's likely his administration would push to dismantle the SAVE plan and potentially legally challenge the remaining forgiveness plans in place, Michael Ryan, a finance expert and the founder of michaelryanmoney.com, previously told Newsweek.
Update 11/15/24, 3:25 p.m. ET: This article has been updated with comment from a spokesperson from the DOE.
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