On December 8, 2024, President Joe Biden announced that his administration would be reopening two student loan repayment plans, namely Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE), as additional options for borrowers seeking student loan forgiveness. This decision comes in light of significant challenges surrounding the newly introduced SAVE plan, which has faced various legal challenges, leaving millions of borrowers in a state of uncertainty since August. The SAVE plan aimed to simplify the repayment process by offering lower monthly payments tied to income and a more favorable loan forgiveness timeline, but its current legal status puts its functionality in jeopardy. As the Biden administration prepares to phase out the older ICR and PAYE options for new enrollees, the return of these plans is seen as an attempt to provide alternative pathways for borrowers who are now without clear options.
Since the 8th Circuit Court of Appeals granted an injunction against the SAVE plan, around eight million borrowers have been placed in a forbearance status, which results in a freeze on payments and interest accrual but also suspends any accrual of time toward forgiveness under both income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF). This scenario creates a situation where borrowers cannot progress toward any debt relief, further complicating their financial situations. Should the SAVE plan ultimately be dissolved either by the courts or the incoming Trump administration, borrowers may find themselves limited to the older ICR option, which, while functional for some, tends to be considerably less affordable compared to newer initiatives like SAVE.
The ICR plan, despite its historical significance as one of the original IDR options, is criticized for being the least affordable alternative available to borrowers today. Nevertheless, it could potentially serve two groups of borrowers: those with Parent PLUS loans and those with relatively small balances. Parent PLUS loans generally do not qualify for IDR plans, but if they are consolidated into Direct loans, they could then qualify for ICR. Additionally, borrowers with small balances may find ICR appealing as it does not impose a “partial financial hardship” requirement, making it possible for them to enroll even if their incomes exceed the thresholds for the IBR and PAYE plans. This could provide a crucial avenue for borrowers seeking to complete their journey toward student loan forgiveness.
In contrast, the PAYE plan offers a more manageable payment structure with a lower monthly obligation than both the standard repayment plan and potentially the ICR. PAYE is designed to provide affordable monthly payments based on income levels, making it a viable option for many borrowers, especially those comparing potential payments in light of their financial situations. The repayment terms are shorter than those under ICR, leading to forgiveness after 20 years. However, the plan features criteria that must be met for eligibility, particularly restrictions on when loans were disbursed, which may limit access for some borrowers, especially those who took out loans around critical dates set by the Department of Education.
While the Education Department has taken steps to reintroduce the ICR and PAYE options, the timeline for implementation is linked to various legal and legislative uncertainties. The process started in November, with the expectation that the plans could become operational by mid-December. However, ongoing litigation casts a shadow on the future of these IDR plans, as the 8th Circuit has raised questions about whether student loan forgiveness can be sanctioned under these older repayment programs, leading to a sense of unease among borrowers who depend on these options for relief.
Looking forward, the potential decision-making of the incoming Trump administration may also significantly overshadow the future of repayment plans and student loan forgiveness initiatives. There is speculation that the new administration could reverse the reopening of ICR and PAYE, although they may find it more complicated to dismantle specific IDR programs such as IBR and PSLF, which were established through Congressional action. Navigating these complexities will be crucial for the Biden administration and future policymakers as they chart a path for student loan borrowers, who remain in an uncertain and often precarious financial situation.
