Reboot Your LifeTampa Student Loan and Bankruptcy Attorney Blog

An email went out to federal student loan borrowers today that was rather vague.  It basically said to stay tuned.  None of us know exactly what the Biden administration is up too, other than confusing all of us, but it’s possible that they could be talking about this:

A new student loan forgiveness plan that will be geared toward four broad categories of borrowers:

• Borrowers who have accumulated large amounts of interest.

PAYE and ICR for non-Parent Plus borrowers was supposed to be phased out under the SAVE regulations as of July 1. But those regulations are now blocked following the 8th Circuit’s order. So PAYE (and ICR) are available for borrowers to enroll, at least for now. But, the online IDR app is down for the foreseeable future; borrowers can apply on paper, but no IDR apps are being processed right now and borrowers should expect very long processing delays. Details here: https://www.ed.gov/save.

So if you’re having problems getting your IDR approved, this is why.  In the meantime, your loans will be placed into forbearance (which doesn’t count for IDR or PSLF).

The IDR audit or recount is still underway – but will likely be pushed back again until sometime this fall.  My guess is that the Biden administration would want that done before the elections if at all possible.

Lots of fighting over student loan forgiveness right now.

One of the big things we were (and still are) looking forward to is a change of law allowing bankruptcy debtors to obtain IDR credit for their plan payments.  Previously, many debtors did not receive such credit because the Department of Education automatically placed student loans in forbearance.  We called that the “False Start” instead of Fresh Start because while a bankruptcy could offer solutions for car loans, foreclosures, and credit card debt, there was not much available for those with student loans.  Instead the balance owed was often much larger after the bankruptcy was over.  That has now changed!!

A new bankruptcy forbearance provision was included as part of a set of regulations that were to implement the SAVE plan.  On June 24, judges in two separate cases involving the SAVE IDR plan, entered preliminary injunctions enjoining some of the regulations from going into effect.

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.