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What's the Future of Student Loan Debt Relief and SAVE?
Update: 2025-01-24
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Laura answers a listener's question about managing student loans in forbearance and reviews seven things about the SAVE Plan to know.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
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Transcript
00:00:00
As a business owner, you wear a lot of hats.
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00:01:05
Hey everyone, welcome back.
00:01:13
It's Finance Friday, another special edition of Money Girl, where I answer your burning money questions.
00:01:19
This topic comes from Faith F, who says, "I have student loans and work in a non-profit organization.
00:01:28
I'm working toward public service loan forgiveness, or PSLF, and have made about 80 qualifying payments.
00:01:36
I'm in the SAVE plan that stands for Saving on a Valuable Education, and I've been on administrative forbearance since April 2024."
00:01:47
While not making loan payments or accruing interest has been a relief, the forbearance months don't count toward my loan forgiveness.
00:01:57
However, I have been able to contribute more to my Roth for a 3B.
00:02:01
Since we don't know what will happen with loan forgiveness under the new administration, should I stay in the SAVE program, or switch to another one like Pay,
00:02:12
that stands for Pay as you earn, or IBR, which is income-based repayment.
00:02:18
Also, does being in forbearance on student loans hurt my credit score?
00:02:24
Thank you so much for your well-timed question, Faith.
00:02:27
If you're a student loan borrower, this podcast will review recent legal developments that may affect you.
00:02:32
I'll explain what's happening, and what actions you may need to take.
00:02:37
Thanks for downloading Episode 895 of the Money Girl podcast.
00:02:41
If you're new here, I'm Laura Adams, an award-winning author, money-speaker, on-camera-spokesperson, and founder of The Money Stack, a free sub-stack newsletter.
00:02:52
You can learn more and connect with me at LauraDatams.com.
00:02:56
That's also where you can email your money question and sign up for The Money Stack newsletter, which does give subscribers a terrific money-success toolkit, so that's a nice 3B to look forward to when you sign up.
00:03:09
You can also record a brief question or comment on our voicemail line when you call 302-364-0308.
00:03:19
We love getting your questions, and we'd love to cover them here on a future show.
00:03:24
Faith mentioned being enrolled in the Save Plan.
00:03:28
This is one of many repayment options that the Department of Education offers when you have federal student loans.
00:03:37
Everything we're going to be talking about today applies to federal student loans, not to private loans.
00:03:44
So due to the pandemic, federal student loan payments were temporarily suspended.
00:03:49
However, that relief was supposed to expire at the end of October 2023.
00:03:55
Well, instead of letting the financial assistance end, the White House created a new and more generous income-driven student loan repayment program known as Save,
00:04:07
or saving on a valuable education, as I mentioned, and some of its benefits began in 2023 and others in 2024.
00:04:16
Save actually replaced an existing plan called Repay, R-E-P-A-Y-E, or Revised Pay as you earn plan, and the new program gives borrowers some unique benefits,
00:04:29
like a 10-year loan forgiveness period, and a new calculation that significantly reduces their payments.
00:04:37
Right now, there are about 8 million federal loan borrowers, like Faith, who are enrolled in Save.
00:04:43
And if you want to learn more about that program, you can go back and listen to podcast 789, called Seven Benefits of Save for Student Loans and Your Credit.
00:04:52
I did that show right as the program was rolling out.
00:04:57
So what's going on?
00:05:01
I mentioned that there was something happening to the Save Plan.
00:05:02
While the Save Plan has lowered or eliminated federal loan payments for millions of borrowers, it has opponents who are challenging its legitimacy.
00:05:12
In the fall of 2024, they sued the Biden administration, saying that the administration never had the authority to enact the Save Plan in the first place.
00:05:22
The opponents say that Save could cost taxpayers hundreds of billions of dollars over a 10-year period, and that Congress, not the president,
00:05:32
must approve such a massive program.
00:05:35
So a federal court has frozen Save, preventing the United States Department of Education from implementing parts of that plan and components of some other income-based programs,
00:05:47
giving relief to federal student loan borrowers.
00:05:50
However, some legal experts say that years ago, Congress did give power to the president to create new federal student loan repayment plans.
00:05:59
And since the 1990s, every administration has used that authority to develop or continue repayment plans, and they've done it without any legal drama.
00:06:10
So until this gets battled out in court, specific student loan relief programs are kind of caught in limbo.
00:06:18
Their future is even more uncertain because the Trump administration has mentioned upcoming sweeping changes that they want to make to the Department of Education, such as,
00:06:28
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00:09:20
What can you do if you have student loans or if you're enrolled in one of these programs that are effective?
00:09:27
What does a frozen save program mean if you're somebody like faith and you've got federal student loans in forbearance?
00:09:35
Well, first, I want you to be certain that you understand if and when your loan payments resume.
00:09:41
It could devastate your finances if you don't know any upcoming payment deadlines or you just choose to ignore them and default.
00:09:50
The government can take aggressive action to collect federal debt, like garnishing your wages or even taking your tax refund.
00:09:58
Garnishment is a legal process that requires an employer to withhold a portion of an employee's paycheck and send it to a creditor instead.
00:10:06
So if you're unsure about the status of your federal student loans or you haven't had any communication from your lender, check in with them, find out what the alternatives are to save.
00:10:18
Also, be sure your email and your mailing addresses are up to date so you don't miss any important announcements from a student loan servicer.
00:10:27
So based on some guidance that came out on January 15, 2025 from the education department, I'm going to go through seven things that borrowers should know about the save plan or really other repayment programs as well.
00:10:44
Number one is you don't owe monthly loan payments.
00:10:48
Your loan will likely stay in forbearance until December 2025 if you choose to remain in the save plan.
00:10:57
However, I do want to mention that the Trump administration could change that.
00:11:01
You know, they could alter that timeline.
00:11:04
So again, check in with your loan servicer so you're up to date on what's going on.
00:11:09
Also, faith asked whether being in forbearance hurts your credit.
00:11:13
While any loan in forbearance can appear on your credit report, you know, it can show that it is in forbearance.
00:11:21
But if you follow the program guidelines, a forbearance won't hurt your credit scores.
00:11:26
Number two, no interest is accruing on your debt.
00:11:30
So that's part of the benefit of being in the save plan.
00:11:34
Number three, you aren't earning credit toward forgiveness and faith mentioned that this is a downside.
00:11:40
And I'll talk more about that in a moment.
00:11:43
Number four, you can switch to another income driven repayment plan.
00:11:48
If you enroll in an older student loan repayment option that is not affected by the lawsuits and these include IBR, which is income based repayment,
00:12:00
ICR income contingent repayment and pay PAYE, which is pay as you earn, you can earn forgiveness credit again.
00:12:10
So that's something that faith should explore.
00:12:12
And I know all these acronyms for these repayment plans can get really confusing.
00:12:17
So I would encourage you to definitely go to the Department of Education website to kind of brush up on this.
00:12:24
If you haven't thought about your repayment program in a while.
00:12:27
Number five, you may be able to buy back forgiveness credit.
00:12:32
So this is something new that they're offering.
00:12:35
If you're eligible for the public service loan forgiveness program or PSLF and you've completed 10 years of public service in your job,
00:12:45
you may qualify to make a payment to get credit for any time that you've missed during forbearance.
00:12:52
So remember faith said that since she enrolled in SAVE in April 2024, since then she hasn't been getting credit toward her public service forgiveness.
00:13:03
And I'm not sure how long faith has worked in her job, but if she has been working for at least 10 years, that's something that she might want to look into.
00:13:14
And how it works is you do have to submit a buy back request.
00:13:18
And then you will make an extra payment on your loan.
00:13:21
So the amount that you have to pay is the buy back equals what you would have owed if you had been on a repayment plan all that time that qualified for forgiveness.
00:13:32
And you can learn more about this at studentaid.gov.
00:13:36
All right, number six, you can still make payments.
00:13:39
If your loan is in forbearance, but you can afford to make loan payments during this period, it will help you pay off your debt faster while no interest is accruing.
00:13:51
And reducing your loan balance sooner rather than later is always helpful and it could be especially helpful if the courts revoke the SAVE plan permanently because that might cause your monthly payments to increase in the future.
00:14:05
In other words, reducing your balance now means having lower future payments under a revise repayment plan.
00:14:13
And number seven, your monthly payments could increase if you switch plans.
00:14:18
Be sure to choose a new repayment option based on your financial situation and your budget.
00:14:25
You can use the education department's loan simulator to estimate your payments and forgiveness timeline on different income driven repayment plans.
00:14:35
You know, many of them are based on your income, so if you're a high earner, you may not qualify for some of them.
00:14:42
And again, it's going to affect the actual payment that you may have to make.
00:14:46
So you want to make sure that it fits into your budget.
00:14:49
So what's going to happen to the SAVE plan?
00:14:53
The reality is we don't know what's going to happen.
00:14:55
We don't know if the SAVE plan will exist in the future because it depends on court decisions, the education department and the Trump administration.
00:15:05
But I will tell you what the education department recently published.
00:15:10
They said, quote, the department is working to build a version of the SAVE plan that complies with the eight circuits injunction.
00:15:18
That plan would generally have the same terms as the 2015 repay rule with respect to the monthly payment amount for borrowers.
00:15:27
At this time, the department anticipates that such work will not be completed until at least the early fall of 2025 end quote.
00:15:35
And the department of education also says that borrowers will remain in the interest-free SAVE forbearance until the revised plan is available.
00:15:46
And you can see their updates at ed.gov/save.
00:15:50
So to sum up, Faith may benefit from switching her repayment plan from SAVE to one that allows payments to count toward her public service loan forgiveness.
00:16:03
Switching may also be a good move for anyone who's getting close to qualifying for forgiveness and just wanting debt relief as soon as possible.
00:16:13
You can log into your federal student aid account or contact your loan servicer to learn more and submit an application to switch repayment plans.
00:16:21
But again, do it carefully be sure you understand what your payment and situation would be after making a switch.
00:16:29
And getting out of SAVE may also be wise if you have a low student loan balance or you can afford to make monthly payments.
00:16:36
Again, that would allow you to eliminate your debt faster.
00:16:40
But if you're not in the public service loan forgiveness program or you can't afford to make monthly payments on your student loans right now, staying in the SAVE plan for as long as possible may be best.
00:16:53
As I mentioned right now, the Department of Education is saying fall of 2025 is probably the earliest any changes could be made and in my opinion,
00:17:04
it could be even later than that.
00:17:06
Faith, I want to thank you so much for your question and hope you'll do the research on your loans.
00:17:12
And let me know what you figure out and what you end up doing.
00:17:15
Before we go, a quick reminder to subscribe to The Money Stack, my substack newsletter when you visit LauraDatoms.com.
00:17:22
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00:17:26
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00:17:32
That's all for now.
00:17:33
I'll talk to you soon.
00:17:35
Until then, here's to living a richer life.
00:17:38
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00:17:42
I want to thank Steve Rikiburg, who audio engineers the show.
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00:19:01