It’s been a rollercoaster for federal student loan borrowers during the last few weeks, as the Department of Education has made a series of announcements that will impact millions of borrowers struggling with their monthly payments or trying to enroll in an income-driven repayment (IDR) plan.
The good news is that, according to top department officials, borrowers should soon be able to access IDR plans after several months of suspended processing. This includes those trying to switch from the Saving on a Valuable Education (SAVE) plan to a different IDR plan, borrowers enrolling in IDR for the first time, and those needing to request a recalculation of their monthly IDR payments due to changes in their circumstances.
The bad news, though, is that application backlogs may cause significant delays; the future of several IDR plans is uncertain, at best; and for borrowers who cannot afford their payments and start falling behind, there may soon be severe financial consequences.
Here are the latest updates, and what student loan borrowers should know.
IDR application restored for federal student loan borrowers, with some changes and uncertainties
The Department of Education has now fully restored both the paper and online IDR application. The department had removed the application in February following a new decision by the 8th Circuit Court of Appeals that extended and broadened the block on the SAVE plan, the newest of four separate IDR plans. After the American Federation of Teachers (AFT) filed a legal challenge over the removal of the applications in March, the department restored the online IDR application, and the paper application followed a few weeks later.
But there have been some changes to the IDR application.
The SAVE plan is no longer an option on the form, reflecting the reality on the ground that the program remains blocked by the 8th Circuit and appears increasingly likely to get struck down or repealed. Borrowers can apply for one of the other three IDR plans — Income-Contingent Repayment (ICR), Income-Based Repayment (IBR) or Pay As You Earn (PAYE). However, borrowers no longer have the option to let their loan servicer choose the plan with the lowest monthly payment amount.
There also remains some uncertainty about several IDR programs. In addition to the SAVE plan, the 8th Circuit has also called into question student loan forgiveness at the end of the 20- and 25-year terms for PAYE and ICR, respectively, as these programs were created using the same statutory authority as the SAVE plan.
That legal authority is now under scrutiny by the court. As a result, while the PAYE and ICR plans remain open, the Department of Education has blocked loan forgiveness under the programs. And earlier this month, the department announced the commencement of negotiated rulemaking for the PAYE and ICR plans, which could result in fundamental changes to those programs.
IBR, which is not being challenged in court and was not part of the negotiated rulemaking announcement, so far remains untouched.
IDR processing to resume in May for student loan borrowers
Processing for IDR applications that were already submitted by borrowers is expected to resume by May 10, according to a sworn declaration submitted by a top Department of Education official earlier this month.
The declaration was filed in response to the AFT’s legal challenge. IDR application processing has been paused since February, and was also paused for several months after the 8th Circuit’s initial ruling on the SAVE plan last August.
“Education directed its servicers to resume placing borrowers that apply for ICR, PAYE and IBR into their respective plans as soon as possible,” said Acting Under Secretary of Education James Bergeron in the declaration. “At present, based on information provided by servicers, Education expects that servicers will be able to resume doing so by May 10, 2025.”
However, nearly two million IDR applications are in the queue to be processed, according to the department. While officials have expressed confidence that these applications will be timely processed, student loan borrower advocates are concerned about significant delays associated with the backlog.
Married student loan borrowers who file taxes separately should see no changes
The good news for some student loan borrowers is that after a brief scare that suggested the Department of Education was going to start counting spousal income for married borrowers who filed taxes separately from their spouse (which is not allowed under current law), the department filed a corrected declaration removing the reference to the inclusion of spousal income in IDR payment calculations.
“Education expects that by May 10, 2025, servicers will implement the treatment of spousal information for ICR, PAYE and IBR such that married borrowers filing separate income tax returns or separated from their spouses will have the spouse counted in the family size for the purposes of calculating monthly payment amount under IDR plans,” reads the corrected statement.
The inclusion of a spouse in a borrower’s family size, even if they file taxes separately, may actually result in a modest reduction in the IDR payment amount for some borrowers.
Processing forbearance will count toward student loan forgiveness for PSLF, but not for IDR
According to the Department of Education, once IDR processing resumes, borrowers may be placed into a processing forbearance for up to 60 days. During the processing forbearance, interest will accrue. However, the period can count for student loan forgiveness, depending on the program.
“Periods of time spent in processing forbearance will count towards Public Service Loan Forgiveness (“PSLF”) eligibility under 34 CFR § 685.219(c)(2)(v)(H),” says the department declaration. “Those periods will not, however, count towards eligibility for forgiveness due to a borrower’s enrollment in an IDR plan.”
Borrowers whose IDR applications are not processed within the 60-day processing forbearance period will be moved back into a general forbearance, which will not count toward student loan forgiveness under either PSLF or IDR.
Collections efforts to resume against defaulted student loan borrowers
While the resumption of processing for IDR plans is welcome news for many student loan borrowers, the Department of Education has also announced the resumption of collection actions against borrowers who are in default on their federal student loans. These actions may include tax refund interception and Social Security offset, which are expected to resume by May 5. Additionally, administrative wage garnishment will restart shortly thereafter.
There appears to be widespread agreement that, in addition to the roughly five million borrowers currently in default on their federal student loans, millions more are at risk of falling behind on their monthly payments and eventually going into default. The department has indicated that it will step up outreach efforts to struggling borrowers and will take additional steps to streamline access to IDR plans in the coming weeks.
But it is unclear how successful these efforts will be, given the significant recent staff reductions at the Department of Education due to mass layoffs and resignations.
“Over the next two months, FSA will conduct a robust communications campaign to engage all borrowers on the importance of repayment. FSA will conduct outreach to borrowers through emails and social media reminding them of their obligations and providing resources and support to assist them in selecting the best repayment plan, like the new Loan Simulator, AI Assistant (Aiden), and extended servicers call times,” said the department in a statement on Monday announcing the resumption of collections efforts against defaulted federal student loan borrowers.
“FSA will also launch an enhanced Income-Driven Repayment (IDR) process, simplifying the time that it will take borrowers to enroll in IDR plans and eliminating the need for borrowers to recertify their income every year. More information will be posted on StudentAid.gov next week.”
