8th Circuit Court of Appeals Confirms and Expands the SAVE Freeze
After months of waiting, we finally have news related to the SAVE plan court cases.
As a result of a lawsuit out of Missouri, the SAVE plan was essentially put on ice. Borrowers on SAVE have been on an interest-free forbearance that has not counted toward PSLF or 20/25-year forgiveness.
That injunction was appealed, and on February 18th a higher Court of Appeals out of the 18th Circuit confirmed - and even expanded the freeze - for the SAVE plan as a whole (rather than certain parts of the plan).
So, what do we do with this news? Really, nothing has changed. It’s a continuation of the freeze we’re already experiencing, and the case was kicked back to the lower court with instruction to make a final ruling already. The mantra continues to be patience, patience, patience.
It’s that final ruling we’re waiting for to get a more concrete idea of the fate of SAVE. For now, we’re just projecting out Plan B in case SAVE doesn’t survive.
For example, what would the math look like if we’re only left with IBR, which is actually written in the law? Knowing there are two versions of it depending on whether your first federal loan was taken before or after July 2014. Or, what if REPAYE was restored instead of SAVE?
Your payments on PAYE, SAVE, and REPAYE do continue to count toward forgiveness. However, at this exact moment you can’t receive forgiveness while on these plans.
If you’re about to be eligible for forgiveness while this is all still going on, your only option is to switch to IBR to actually receive the loan cancellation.
As I wrote in a previous newsletter, optometrists that have a long time until forgiveness are likely going to benefit from switching to IBR or PAYE - it’s just a matter of when to switch.
IDR Plan and Consolidation Applications Paused for 90 Days
Ok, this was a surprise.
Apparently as a result of the court’s ruling above, the Department of Ed put a halt on all online IDR applications, consolidation applications, and income recertification for at least the next 90 days. But still processing IBR forgiveness, it seems.
The buttons for the online apps have been grayed out on the Federal Student Loan website - you can’t move forward with anything.
According to Federal Student Aid, it appears you can still submit a paper consolidation form, and it might be possible to do the same for IDR applications and recertification for now.
Some are saying paper applications are processed by services, others are saying it’s pending. I’m not sure what it will look like by the time you read this newsletter. If you need to enroll in an IDR plan or recertify, a paper app is still worth a shot.
Andrew Tate, Esq., of the Student Loan Lawyer put out an excellent graphic on the state of things:
Why did they block all IDR applications if the court only blocked SAVE? That’s the million dollar question without an answer at this point. Perhaps the Department of Ed panicked and simply shut it all down.
How long will this last? I have no clue. My guess, and the guess of others steeped in the student world news, is that it depends on the courts. I hope the court rules quickly and puts all this to rest.
This is all highly fluid without any clear indication of when things will open up. Any time I put out a piece of content about all of this, I’m worried how quickly it becomes old news and obsolete.
But for now, the only thing we can do is wait. Again, we have to remain patient and wait out
In terms of recertification, I think it’s helpful to keep in mind the schedule for recertification deadlines:
- 3 months before: Your servicer reaches out to you about recertifying your IDR plan.
- 35 days before: Your income information is “due”. If you miss this deadline, your next billing statement might not reflect the information you provide.
- 10 days before: This is when it’s really due. It’s the last date you can turn in your income documents. If you miss this deadline, you’ll be taken off your IDR plan and put onto a different standard repayment plan.
So, the reality is you have until 10 days before the actual anniversary date of your IDR plan to get your income information in before it’s too late. If push comes to shove, you may need to request a forbearance until these issues are sorted out.
And if you’re currently on SAVE, recertification dates have already been pushed out to February 2016 at the earliest.
Is The Department of Education Is Getting Shut Down?
Wow, talk about scary headlines. It appears President Trump is preparing to sign an executive order shutting down the Department of Education, following up on one of his campaign promises.
A memo of the order apparently read: "We are to identify which of the Department's functions, programs, and offices are not mandated by statute, and eliminate them…”
Which has some pretty important language - “not mandated by statute”.
The administration of the federal loan program would not go away with this executive order. The Department of Education can’t actually be dismantled without Congressional action. Federal loan programs like IBR can’t be dismantled without an act of Congress.
It’s possible that responsibilities are shifted to other government agencies. For example, I’ve seen opinions that student loan administration could shift to the US Treasury.
But let’s not panic because of the headlines, student loans aren’t going away. A healthy proactive action you can take is to download your student loan data file from Federal Student Aid and keep record of how much you owe and payment history.
Trump Signs Executive Order Impacting PSLF
In another scary headline, President Trump signed an executive order aiming to redefine “public service” to exclude organizations engaged in activities deemed to have a “substantial illegal purpose.”
The order specifically mentions nonprofits engaged in:
- Immigration and refugee assistance that may violate federal immigration laws
- Civil rights and legal aid organizations accused of aiding illegal discrimination
- Nonprofits supporting transgender youth and gender-affirming care
- Groups involved in public protests or political activism
The order says that PSLF should be focused on “essential public service roles” like healthcare and education, rather than organizations involved in activism or politically sensitive issues.
What does this mean for optometrists going for PSLF?
Fortunately, for now, I don’t think this is going to have a major impact on optometrists. As Stanley Tate mentioned in a recent newsletter:
Presidents cannot unilaterally change federal law, including PSLF, with an executive order. PSLF is codified in
20 U.S.C. § 1087e(m) of the Higher Education Act, which explicitly defines which workers qualify for loan forgiveness after a decade of public service
Under § 1087e(m)(3)(B), qualifying jobs include:
-Government positions
-Military service
-Public health
-Public education
-Social work
-Legal aid for low-income communities
-Employment at a 501(c)(3) nonprofit
The statute itself protects 501(c)(3) employees, meaning the order cannot exclude them from PSLF without congressional action.
Optometrists working in the VA/Government, military, or other 501(c)(3) nonprofits seem to continue to be eligible for PSLF.
Wrap Up
Phew! 😅 That’s a lot. Things are changing rapidly and it’s very easy to get stressed by the news.
Ultimately, I don’t believe any of this changes the general approach to student loan planning. For those with student loan balances high enough, going for forgiveness is still going to mathematically make sense.
But it does again highlight exactly what you’re signing up for by going this route. By going the route of what’s likely to be mathematically optimal, you’re adding more work to keep up with everything, and more uncertainty along the way.
If you go for a 20-year forgiveness timeline, you may face five different presidential administrations, all with dramatically different opinions on how student loans should work - in addition to the many different Congresses along the way.
But it’s no different than doing other forms of long-term tax or financial planning using tax and other government policies. Just using pre-tax or Roth retirement accounts, for example, is a long-term bet on how tax laws will look 20, 30, 40+ years into the future.
Stay patient, and make decisions as you have the information you need. Reach out to me or another professional that works with student loans on a daily basis.
Until next time, have a great weekend!
Evon Mendrin CFP®, CSLP®
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