Important Updates: Dept of ED’s New Guidance on IDR Repayment Plans

Jan 22, 2025

Important Updates: Dept of Ed’s New Guidance on IDR Repayment Plans

The Federal Student Aid administration surprised a lot of people (including us) when they sent out online guidance on several different topics to millions of borrowers last week. They also updated some of their guidance online. Our team has analyzed all of these updates, and want to take a few minutes to break them down for you. We’ll cover a few related matters as well.

Special SAVE Forbearance

Those on SAVE will be in this forbearance until servicers are able to accurately calculate monthly payments, which the Office of Federal Student Aid expects servicers to be able to do no earlier than September 2025.

This timeline will give borrowers the opportunity to make another choice for repayment, based on which of the updated options is best for them.  Because this transition will take time, student loan servicers expect first payments to be due no earlier than December 2025.

Our thoughts;

  • The SAVE forbearance may last through the end of 2025, but this timeline is not guaranteed. Be prepared for potential changes.
  • This announcement does not advise borrowers to switch plans at this time. However, with SAVE likely to be withdrawn (we’re 95% certain), participants may be switched to another plan automatically or prompted to select a new one later this year.
  • Deadlines for submitting paperwork for plan changes remain unclear but should follow shortly after SAVE’s status is resolved in court.

Recertification Dates

Because SAVE Plan borrowers will be in a general forbearance until the fall of 2025, ED is directing loan servicers to change IDR plan anniversary recertification deadlines.

The first recertification deadline for SAVE borrowers will be no earlier than Feb. 1, 2026. Recertification deadlines will occur on a rolling basis. Borrowers will receive information from their servicers on their specific recertification timeline.

We encourage you to visit StudentAid.gov and provide consent for auto-recertification of your IDR plan if you are eligible. By doing so, we’ll automatically recertify your IDR plan by its recertification deadline. This will ensure you remain enrolled in SAVE. 

Our Thoughts:

  • The “rolling basis” term is new. It might reference the logic used during the CARES Act pause (the 6 to 12 months rule), where recertifications were staggered based on current deadlines. Alternatively, servicers may establish entirely new recertification dates.
  • This guidance mainly reassures borrowers that no recertifications will be required until a decision on SAVE is reached.
  • If borrowers are automatically moved to another plan, such as REPAYE, servicers may recalculate payments based on the new plan’s terms.

Switching plans and available plans

“Borrowers who meet the eligibility criteria can enroll in the following IDR plans: the Pay As You Earn (PAYE) Plan, the Income-Based Repayment (IBR) Plan, or the Income-Contingent Repayment (ICR) Plan. Monthly payments made under these IDR plans do provide credit for PSLF* and IDR.

However, please note that, due to the court’s injunction, forgiveness at the end of a borrower’s repayment term is not currently permitted under the PAYE, ICR, and SAVE Plans. Although forgiveness related to PAYE, SAVE, and ICR plans are currently enjoined, borrowers can have their loans forgiven if they are enrolled in the IBR Plan.

Payments on PAYE, SAVE, and ICR are counted toward IBR Plan forgiveness if the borrower enrolls in IBR. If your loan servicer needs time to process your IDR application, you will be moved into a processing forbearance for up to 60 days. This processing forbearance will provide credit towards PSLF and IDR.”

Our Thoughts:

  • Again, no one is being instructed to switch plans at this time. But you have the option.
  • The borrowers who should most strongly consider switching plans are those who do not want to rely on the PSLF Buyback for PSLF, or those who are getting close to 25yr forgiveness.
  • Note that switching plans will likely increase your payment calculation and require new income documentation, likely causing your payment to be higher than it was under SAVE.

Paperwork Processing

FSA staff has finally started processing applications for PAYE, ICR and IBR, and they admit there is a backlog. They have also started processing recertifications for those who are on other IDR plans besides SAVE.

That’s a big deal. We saw many borrowers on IBR and PAYE have their recertification dates pushed to 2026. There wasn’t technically a good reason to do this. So be sure to pay attention to any recertification notices from your servicer or check their website just in case they adjust it again.

PSLF Buyback

In the future, borrowers will be able to buy back months even if doing so does not qualify them for immediate loan forgiveness.

  • Currently, you cannot apply for the PSLF Buyback until you have completed your 120 months of service. This is a teaser letting you know that rule may be changing soon.
  • This would be an important upgrade to the program as it would take away the anxiety for those wondering if the Buyback program will really work out for them in the end, and how much they would be forced to pay.
  • Perhaps we’re reading too far into this, but we take this as yet another sign that FSA leadership thinks the buyback program will be safe under the Trump administration.

IDR buyback

The IDR buyback program will not be available before the summer of 2024. The program will be similar to the PSLF buyback program but will have different rules for which months can be bought back. We’ll provide an update when more information is available.

  • This was not part of the recent announcements, but many borrowers have asked us about it.

Is FSA processing IDR forgiveness (20/25 Year)?  

“Forgiveness as a feature of any IDR plan created by the Department is currently enjoined. Borrowers who reach their plan’s repayment milestone will be moved into an interest-free forbearance, if they are not already in a forbearance as a result of the litigation. The Department can and will still process loan forgiveness for the Income-Based Repayment (IBR) repayment plans, which were separately enacted by Congress. Payments on PAYE, SAVE, and ICR are counted toward IBR Plan forgiveness if the borrower enrolls in IBR.“

Our Thoughts:

  • Different IDR plans come from different places. Because Income Based Repayment (specifically) was created and approved by Congress (not DOE or a president), it is not caught up in all of this litigation.
  • Borrowers have always been allowed to switch between IDR plans and keep their payment/forgiveness credit from the previous plan. What they are saying here is that if you’re approaching your forgiveness (20 or 25 year) milestone with one of the affected plans, you can switch to IBR and be granted forgiveness under that plan when you hit 20 or 25 years, depending on which version of IBR you qualify for. Or you can simply wait in forbearance until they are able to process the forgiveness under your current plan.

Summary

We’ll be honest, we did not expect the DOE to send out information that a payment pause would last an entire year. And frankly, we are skeptic of it. GOP leaders have been pressuring the Biden administration to put borrowers back into repayment for two years.

It was even part of the budget deal last year. So, we find it hard to believe that a Trump administration with a GOP-controlled congress is going to sit by and watch a huge portion of borrowers make no payments for all of 2025.

All that said, they may have no choice. Logistically, it is going to take many months for servicers to get all of this straightened out.

We’ve reached the point where many borrowers have made practically no payments in four years. While most borrowers have appreciated the payment vacation and free PSLF credit (until recently), we know many of you are becoming very uneasy with this situation, and your instincts are telling you to get back into repayment.

While we totally get where you’re coming from, we are still advising most SAVE participants to hold fast for now. Continue getting the interest subsidies of the SAVE forbearance, and plan for the PSLF or IDR Buyback as your forgiveness event approaches.

We still think changes are coming shortly after the new leadership takes over at DOE. Once those changes are announced, then we will consider altering our recommendations.

Action items

  • Set aside the money you would normally be paying under SAVE so that the Buyback does not create a financial burden. Remember, you only get 90 days to pay the amount in full.
  • If you experienced a significant income increase between 2023 and 2024, consider extending your 2024 tax returns through October. If you apply for a new IDR plan before that time (either by choice or by force) this could significantly reduce your payments under that new plan. Still run your taxes before April and pay any applicable liabilities to avoid penalties. Just don’t file them.
  • Download your recent statements or billing change notices to prove what your payment should being during this forbearance. This will ensure you are allowed to pay the lowest possible amount at the time of buyback.

 

 

Brandon Barfield

Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.

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