As Donald Trump prepares to return to the White House, President Joe Biden’s student loan forgiveness initiatives are increasingly in jeopardy. But even borrowers who weren’t expecting loan forgiveness anytime soon could be facing a new threat: higher payments.
With mass student debt cancellation initiatives effectively dead on arrival once Trump is sworn in again, the question for many borrowers will largely be what repayment plans will look like. The SAVE plan, a new income-driven repayment program that provided borrowers with lower monthly payments and an interest subsidy, appears destined for elimination — either by the 8th Circuit Court of Appeals in an expected ruling that could be issued at any time, or by a Trump administration repeal (SAVE was established by the Biden administration without direct involvement by Congress, and can be repealed via the same process).
That, combined with the end of the associated SAVE plan forbearance and upcoming required income recertifications for IDR plans, means that millions of borrowers are almost certainly going to experience significant increases in their monthly payments. Here’s a breakdown.
Several Student Loan Forgiveness Pathways Soon To Be Cut Off
The Biden administration had several student loan forgiveness initiatives in the works that could have provided relief to more than 25 million borrowers. These included:
- The SAVE plan, which allows some borrowers with smaller initial balances to get loan forgiveness in as little as 10 years (as opposed to the normal 2o- or 25-year repayment term for most other borrowers enrolled in IDR plans). The plan is currently blocked by a federal appeals court due to a legal challenge brought by Republican-led states.
- So-called “Plan B” student loan forgiveness, which would wipe out the federal student loan debt, in whole or in part, for borrowers who owe more now than what they originally borrowed due to runaway interest, those who attended low-value schools with poor outcomes, people who first entered repayment at least 20 or 25 years ago, and borrowers who qualify for existing loan forgiveness programs but haven’t applied.
- Hardship-based student loan forgiveness, which would allow borrowers who are at a high risk of default due to personal and financial struggles to receive debt relief either automatically or through an application process.
The SAVE plan and Plan B student loan forgiveness both remain blocked by federal courts. If those courts eventually strike down the programs — which seems likely — the Trump administration could simply choose not to appeal those decisions. Meanwhile, the Education Department probably would just not move forward with implementation of the hardship-based student loan forgiveness program, since the Biden administration has not finalized the governing regulations.
End Of SAVE Plan Forbearance And Shorter Loan Forgiveness Will Likely Be Sooner Than Expected
More than eight million borrowers have been in a forbearance due to the court order blocking the SAVE plan. During this forbearance, no payments are due and no interest accrues while the litigation continues, although the period doesn’t count toward loan forgiveness.
The Education Department had previously indicated that the SAVE plan forbearance could last another six months or longer. That’s because it will take some time for the 8th Circuit to issue a ruling on the program. And it was widely expected that whatever that ruling is, the Biden administration would appeal the decision to the Supreme Court. Borrowers would be expected to remain in the forbearance during that time, which could last at least through the summer of 2025.
But with Trump’s victory and the 8th Circuit seemingly poised to strike down the SAVE plan, the forbearance may end much sooner. If the court issues a ruling relatively quickly, the Trump administration could simply choose not to appeal to the Supreme Court as the Biden administration had intended.
That would effectively end the SAVE plan — and the associated forbearance — possibly within the next few months. Once the SAVE plan forbearance ends, interest would start accruing again, and borrowers would need to return to repayment.
Higher Payments And Longer Student Loan Forgiveness Term Under IBR Plan Than SAVE Plan
With the SAVE plan likely coming to an end, and the ICR and PAYE plans having been phased out, the only viable IDR option for many borrowers will be Income-Based Repayment, or IBR.
IBR is an older income-driven plan created by Congress, and therefore will be more difficult for the incoming Trump administration to interfere with. There are two versions of IBR. A newer version of IBR for borrowers who first took out student loans on or after July 1, 2014 features lower payments and a 20-year loan forgiveness term. Borrowers who took out student loans prior to July 1, 2014 would have higher payments and a 25-year loan forgiveness term. But both versions of the IBR plan could be more expensive than the SAVE plan would be for most borrowers — in some cases, dramatically so.
An single undergraduate borrower with an Adjusted Gross Income (or AGI) of $65,000 would have a SAVE plan payment of only $130 per month. If they qualify for the post-2014 version of IBR, their IBR payments would be more than $350 per month. If they borrowed prior to July 1, 2014, their IBR payments would be around $530 per month — more than three times the SAVE plan payment.
The Education Department recently announced that officials would be taking steps this fall to reopen the ICR and PAYE options for borrowers in light of SAVE’s likely demise. But it’s unclear if that would actually result in lower student loan payments for most borrowers, as ICR tends to be more expensive than IBR in most cases, and PAYE is similar to the newer version of IBR.
Income Recertifications For IDR Plans Could Drive Up Monthly Payments
Many borrowers are also facing the prospect of recertifying their income for IDR plans in 2025. Typically, borrowers must update their income information with the Department of Education every 12 months under IDR plans. Any changes to their income would result in a recalculation of their monthly payment for the subsequent 12-month period.
Because of the Covid-19 payment pause, which lasted for more than three and a half years, many borrowers in IDR plans haven’t had to recertify their income in years, with many IDR recertification dates pushed into 2025. And their current IDR payment may be based on income from before the pandemic even began.
Borrowers who have experienced an increase in their income since then could be in for a dramatic surprise when their IDR payments skyrocket following the recertification of their income, particularly if they were on the SAVE or Revised Pay As You Earn plan, and their only option going forward will be IBR.
Take, for example, the borrower referenced above with an AGI of $65,000. Let’s say that was her AGI in 2019, which was the basis of her payment calculation in 2020. That income information then has carried through to this year due to the Covid-19 forbearance and the associated waiver of annual income recertification requirements.
Let’s say that she now has an AGI of $80,000. If her SAVE payment, based on that older income figure, was $130 per month as noted above, and she now must switch to IBR and provide updated income information with the $80,000 AGI, her payment could be as high as $720 per month — more than a 500% increase.
