SAVE Payments will go to Half for Undergrad (5%) under new 10th Circuit Ruling

The 10th Circuit came out with a ruling a couple days after the Missouri and Kansas rulings modifying the stay/injunction on the SAVE plan and student loan forgiveness.  It will allow the Department of Education to implement SAVE’s 5% payment calculation for undergraduate loans starting July 1.  The rest of SAVE – the ability to file separate tax returns, the 100% interest subsidy, the lower payment overall will still apply as well.  You can also get into SAVE if you weren’t already in before July 1.  Anyone in bankruptcy, will now receive IDR credit for their plan payments.  Thankfully, the 10th Circuit clarified where things stand with this injunction while the underlying litigation takes months to resolve.

What remains blocked is forgiveness under SAVE.  So anyone who reaches the 20/25 year mark, you can switch into another IDR such as IBR and obtain forgiveness while the litigation is pending.  Switching IDR plans does NOT restart forgiveness timelines.  While we don’t expect litigation to last until December 2025, any forgiveness before that date will not be taxed federally.  So no tax bomb if before December 31, 2025.

If you are working public service, the forgiveness would be under the Public Service Loan Forgiveness (“PSLF”) program and should not be halted.  There are no challenges to PSLF presently or being discussed.  Once the IDR audit/recount occurs in September, we expect to see large numbers of people qualify for forgiveness who did not qualify previously due to having the wrong type of federal loans, being on the wrong payment plan, and most extended forbearances and deferments will be credited with PSLF time.  That IDR audit is now expected to occur in September for anyone who has Direct loans or consolidated non-Direct loans such as FFEL, Perkins or HEAL loans, prior to June 30, 2024.

If you are years from forgiveness, staying the course under SAVE is likely best.  Once the litigation is over on SAVE, we’ll know what plans remain and the terms of those plans.