Last week, my roommate and I both received email updates about the SAVE student loan relief plan. The email said our student loan payments were in forbearance.
Since I'm a personal finance writer, my roommate looked to me for answers. How long is this pause? Are we still responsible for making minimum payments? Will we still get forgiveness credit?Â
If you're enrolled in the Saving on a Valuable Education plan, you might be wondering the same thing. SAVE, an income-driven repayment plan introduced last year, was intended to create an easier and more affordable path toward debt forgiveness. However, the SAVE plan has been tied up by legal challenges, leaving millions of borrowers in limbo.Â
The latest setback comes after a federal appeals court blocked all elements of the SAVE plan claiming it was illegal. As a result, more than 8 million borrowers' loans went into forbearance.Â
For now, we're all being told to wait for further guidance from the Department of Education while the courts determine the program's legality -- and that's exactly what I plan to do. In the meantime, I asked experts to explain this pause, how long our payments will be on hold and what comes next for student loan borrowers.Â
Read more: How the Fed's Interest Rate Decisions Impact Student Loan Borrowers
Why are my student loan payments paused?
SAVE felt like a sigh of relief for borrowers like me. Under the SAVE plan, student loan borrowers would receive student debt forgiveness after making either 10 years or 20 to 25 years of monthly payments (depending on the amount of the loan). We would also have a more affordable repayment plan, with monthly payments calculated based on income and family size, as well as a government interest subsidy.
Yet SAVE has faced considerable pushback from Republican-led lawsuits arguing that the Department of Education overstepped its authority. On Tuesday, the Biden administration filed an emergency appeal with the US Supreme Court urging the justices to reinstate SAVE. This move comes after the 8th US Circuit Court of Appeals blocked SAVE, placing more than 8 million borrowers in an indefinite interest-free forbearance last week.Â
Interest-free forbearance means we're not required to make payments and no interest will accrue until a financial decision is made, according to Mark Kantrowitz, a financial aid expert and CNET Money Expert Review Board member. Kantrowitz told me it will take months, maybe as long as a year, for the cases to be resolved.Â
What should borrowers do right now?Â
When I asked what we should do now, the best advice was to hang tight.
Borrowers can simply stay in forbearance if they can't afford to make payments under another non-SAVE plan, according to Michele Shepard Zampini, senior director of college affordability at the Institute for College Access and Success. Just keep in mind that while in forbearance, these temporarily suspended payments won't count toward student loan forgiveness. Â
That's why you may want to consider switching to a different income-driven repayment, or IDR, plan, especially if you're a few months away from receiving forgiveness through public service loan forgiveness, or if you've been in an income-driven repayment plan for 20 or more years.
Still, enrolling in another plan is easier said than done right now, according to Elaine Rubin, an expert on higher education finance and policy and director of corporate communications for Edvisors. Because the US Department of Education has temporarily closed online applications for IDR plans, borrowers will need to submit a PDF application, which makes the process more onerous.
Kantrowitz suggests looking into either the Pay As You Earn or the Income-Based Repayment plan. Like SAVE, both plans calculate monthly payments based on a percentage of your discretionary income, and your total payment count toward forgiveness will remain the same. The biggest difference is SAVE calculates monthly payments based on 5% of your discretionary income (for undergraduate loans), while the PAYE plan and IBR plan take 10%.Â
Though the monthly loan payments are likely to be higher than in the SAVE plan, Kantrowitz said borrowers may receive forgiveness sooner rather than having to wait for SAVE to move through the courts.Â
What comes next for SAVE and student loan forgiveness?Â
If SAVE is fully approved by the courts, borrowers with undergraduate loans can expect monthly payments to drop to 5% of their discretionary income. If you have undergraduate and graduate loans, you'll pay a weighted average between 5% and 10%.Â
Kantrowitz thinks SAVE will survive its multiple legal challenges. "The most likely outcome is that the SAVE plan is preserved unchanged," he said.  Â
However, there's a chance SAVE could be eliminated entirely, which means it may revert to another income-driven repayment plan, the REPAYE plan. If only parts of SAVE are approved, borrowers should assess their situation and determine whether it's worth staying on SAVE or switching to another IDR plan.Â
In my own case, since I'm early in my repayment journey (I just started making student loan payments when the pandemic-era emergency moratorium came to an end in October 2023), I plan to sit tight. I'm pretty far from accumulating enough credit for forgiveness.Â
But I'm eagerly awaiting a verdict, along with millions of other borrowers who took out loans to finance higher education. I'm also going to redirect the money I would normally put toward my student loan payment into my high-yield savings account so it can earn some interest.Â
Do you have a student loan story? Contact me at lhall@redventures.com.
Correction, Sept. 12: The initial version of this story misstated Michele Shepard Zampini’s advice. That section has been reworded to avoid ambiguity.
