Right now many borrowers may be asking themselves “What does it mean if my student loan is in forbearance?” Once again millions of people enrolled in SAVE, or the Saving on a Valuable Education Plan, had their loans placed in an administrative forbearance.
With the SAVE plan paused due to legal challenges, understanding administrative forbearance for student loans and how it affects your repayment options and loan forgiveness timeline is crucial.
If that’s you, here’s what you need to know.
What Does it Mean if My Student Loan is in Forbearance?
When you hear that your student loan is in forbearance, you might wonder what it really means for you. Forbearance, administrative or otherwise, is a temporary pause on your student loan payments.
During this period, you won’t be required to make your monthly payments, and in most cases, interest on your loan will also stop accruing.
But, while this may sound like a relief, it’s important to understand the full implications of forbearance. For one, it is not the same as having your debt forgiven or reduced; you are still responsible for paying back the full amount of your loan once the forbearance period ends.
Also, the clock on your loan forgiveness timeline is paused. Why is this important?
If you are working towards loan forgiveness under programs like Public Service Loan Forgiveness (PSLF), the months you spend in forbearance won’t count toward the total number of payments required for forgiveness.
This means that while you’re not losing money during the pause, you are losing time — time that could be moving you closer to having your debt wiped out.
This is important to note especially now that the Biden administration’s SAVE plan is on hold due to ongoing legal challenges.
Being knowledgeable about the current status of your loans can help you make informed decisions about your next steps, whether that’s considering another repayment plan, or sticking with forbearance until more clarity emerges.
So, if your student loan is currently in forbearance, take the time to consider how this impacts your long-term goals.
The Biden Administration’s SAVE Plan and Why It’s Paused
The Biden administration’s SAVE plan, short for Saving on a Valuable Education, was introduced with much fanfare as a game-changer for student loan borrowers.
The plan aimed to make student loan repayment more affordable than ever before, offering lower monthly payments and quicker debt erasure, especially for those with smaller balances.
It was designed to provide much-needed relief for millions of Americans struggling under the weight of student debt.
But if you’ve been keeping up with the news, you have probably heard that this plan has hit a significant roadblock. The SAVE plan is currently paused due to a series of legal challenges brought by Republican-led states.
These states argue that the U.S. Department of Education overstepped its authority by trying to implement a plan that, in their view, is a backdoor attempt at broad student loan forgiveness.
This challenge comes after the Supreme Court blocked an earlier, student loan forgiveness plan in June 2023.
So, what does this mean for you as a borrower? For now, the legal battles have put the SAVE plan on hold, meaning the new repayment terms won’t be available until the courts reach a decision.
This pause has left many borrowers in limbo, uncertain about how or when they’ll be able to take advantage of one of the plan’s key features, loan forgiveness.
It is also important to note that if you were lucky enough to have already received some relief, before the legal challenges, or perhaps you were among the 414,000 borrowers who’ve had $5.5 billion in student debt forgiven through SAVE, rest assured that this relief is not being rolled back.
The legal challenges to the SAVE plan are still unfolding, and some experts believe the case could eventually make its way to the Supreme Court.
This could mean months, or even years, of uncertainty. In the meantime, it is important to stay informed about the developments and consider how this pause might affect your repayment strategy and long-term financial plans.
Impact of the SAVE Plan Pause on Loan Forgiveness
If you’re pursuing loan forgiveness, the pause on the SAVE plan likely raises some important questions. One of the most critical aspects to understand is how this pause impacts your timeline for achieving loan forgiveness.
Unfortunately, the news here isn’t ideal: the months during this administrative forbearance period do not count toward your loan forgiveness.
This means that if you’re enrolled in the SAVE plan and aiming to have your debt forgiven under the income-driven repayment plan’s terms or through Public Service Loan Forgiveness (PSLF), this pause effectively puts your progress on hold.
Every month you spend in forbearance is a month that doesn’t move you closer to having your debt wiped clean.
For those of you working toward PSLF, this can be especially frustrating. Typically, PSLF requires you to make 120 qualifying monthly payments while working in a public service job.
During this forbearance period, those payments are not counting toward your total, which delays your eligibility for forgiveness.
It’s a setback that many borrowers didn’t anticipate, especially after the promise of relief under the SAVE plan.
So, what can you do? First, it’s important to explore your options.
The Education Department offers something known as a “buyback” option, which allows borrowers who missed payments in the past to retroactively make those payments and receive credit toward PSLF.
This could be a valuable strategy if you’re close to reaching the required number of payments for forgiveness.
Another option to consider is switching to a different income-driven repayment plan that’s not affected by the current legal challenges.
However, be aware that transitioning between plans can take time — sometimes up to 90 days. During this period, you might not be making progress toward forgiveness, but at least you won’t lose ground either.
Even though the pause on the SAVE plan is frustrating, especially if you’re aiming for loan forgiveness, there’s a silver lining. While you might not be moving closer to forgiveness right now, you’re also not making payments, which can offer some immediate financial relief.
Understanding how this pause affects your long-term goals is key to navigating this uncertain time with confidence.
Understanding Administrative Forbearance For Student Loans
Administrative forbearance is a temporary status that pauses your monthly payments and, in most cases, stops the accrual of interest on your loan.
This might sound like a good deal, especially if you’re facing financial challenges, but there are some nuances you should be aware of.
First, the pause in payments gives you a break from the immediate pressure of making monthly payments. This can be particularly helpful if you’re dealing with other financial obligations or unexpected expenses.
Additionally, because interest isn’t accruing during this period, your loan balance isn’t growing, which helps you avoid the ballooning debt that can occur in other types of forbearance.
However, there’s a significant downside to consider: the time spent in administrative forbearance, as mentioned earlier, doesn’t count toward your loan forgiveness timeline.
So, if you’re working toward those 120 payments to be eligible for forgiveness through an income-driven repayment plan or Public Service Loan Forgiveness (PSLF), this pause effectively puts your progress at a standstill.
Every month in forbearance is a month you’re not making qualifying payments, which delays your journey toward debt relief.
For many borrowers, this trade-off is frustrating. On one hand, you’re getting a temporary financial reprieve; on the other, you’re losing valuable time that could have been spent moving closer to loan forgiveness.
It’s a tough balance, and the right choice depends on your individual financial situation and long-term goals.
You can absolutely apply to another income-driven repayment plan that allows you to continue making progress toward forgiveness, even if it means resuming payments sooner than expected. Just keep in mind that transitioning between plans can also take a few months, possibly up to 90 days.
My Student Loan is in Forbearance Now What?
This can be a confusing and stressful time, but there are steps you can take to manage the situation and ensure you’re making the best decisions for your financial future.
1. Stay Informed:
The first and most important thing you can do is stay informed about the ongoing legal challenges to the SAVE plan. The outcome of these cases will directly impact the length of the forbearance period and your repayment options.
Keep an eye on reliable news sources and official updates from the U.S. Department of Education.
2. Explore Your Repayment Options:
While your loan is in forbearance, consider whether you want to remain in this status or switch to another income-driven repayment plan. If your goal is loan forgiveness, you might want to resume making payments under a plan that counts toward forgiveness, even if it means ending forbearance sooner.
However, be aware that transitioning between plans can take time—sometimes up to 90 days—so factor this into your decision-making process.
3. Consider the “Buyback” Option:
If you’re working toward Public Service Loan Forgiveness (PSLF) and have missed payments in the past, you might be eligible for the Education Department’s “buyback” option. This allows you to make up for missed payments and get credit toward your loan forgiveness.
It’s worth exploring this option, especially if you are really close to reaching the 120 payments for PSLF.
4. Evaluate Your Financial Situation:
Take this time to assess your overall financial situation. The pause in payments might offer some breathing room to focus on other financial priorities, such as paying down high-interest debt or building up an emergency fund. Use this period strategically to strengthen your financial position.
5. Plan for the End of Forbearance:
Eventually, the forbearance period will end, and you’ll need to resume making payments. Start planning now for how you’ll manage those payments when the time comes.
Consider setting aside money each month as if you were still making payments, so you’re not caught off guard when the forbearance ends.
6. Seek Professional Advice:
If you’re feeling overwhelmed or unsure about your options, consider seeking advice from a financial advisor or student loan expert.
They can help you understand the implications of forbearance and guide you in making the best decisions for your situation.
By taking proactive steps now, you can navigate the uncertainty of forbearance with greater confidence. While the pause on payments may offer temporary relief, it’s crucial to think ahead and prepare for what comes next, ensuring you stay on track toward your long-term financial goals.
