Student loan borrowers in a temporary “SAVE forbearance” are no longer required to make payments, but experts warn that this inaction could lead to costly consequences.
Interest on these loans resumed on August 1 for those who remained in the special forbearance. The Biden administration had offered this payment pause to borrowers enrolled in its Saving on a Valuable Education (SAVE) plan after the program became entangled in legal challenges. With the SAVE plan now effectively defunct, the Department of Education recommends that borrowers switch to an alternative plan.
Those who remain in the payment pause will face several drawbacks, including a growing loan balance.
Furthermore, time spent in the SAVE forbearance does not count toward student loan forgiveness. This stalls progress for individuals pursuing debt cancellation through programs like Public Service Loan Forgiveness (PSLF) or other Income-Driven Repayment (IDR) plans. IDR plans, which cap monthly bills based on a borrower’s income, typically lead to loan forgiveness after 20 to 25 years of qualifying payments.
“Hanging out in that [forbearance] status means losing time towards that goal,” said Betsy Mayotte, president of The Institute of Student Loan Advisors.
Eventually, these borrowers will be moved to a new plan. Experts anticipate the Department of Education will automatically transition them into the Repayment Assistance Plan (RAP) by July 1, 2028, though this change could be implemented sooner.
Financial advisors suggest that the most prudent step for most affected borrowers is to proactively switch to an available repayment plan. The Income-Based Repayment (IBR) plan is frequently cited as the best current option, particularly as other IDR plans are being phased out. Borrowers can use online tools, such as the loan simulator on StudentAid.gov, to estimate their monthly payments under various plans.
However, Mayotte notes that switching isn’t the right move for everyone. Some borrowers might strategically use the payment pause to pay down other debts with higher interest rates, such as credit card balances, which currently average over 20%.
Source link
