Back / Key Updates on Student Loan Repayments and Lawsuits: What You Need to Know

Key Updates on Student Loan Repayments and Lawsuits: What You Need to Know

Melanie Meths A.|Loan Updates|October 21, 2024
Key Updates on Student Loan Repayments and Lawsuits: What You Need to Know

As of October 16th, there are crucial updates from the Department of Education (DOE) regarding income-driven repayment plans (IDR), the end of the on-ramp to repayment, and an ongoing lawsuit affecting loan forgiveness under the SAVE plan. If you’re a student loan borrower, these changes could impact your repayment strategy, so let’s break it down.

1. Income-Driven Repayment Plans: SAVE vs. Non-SAVE

The Department of Education has issued updates concerning borrowers entering administrative forbearance instead of repayment under the income-driven repayment plans, including SAVE (Saving on A Valuable Education). One major point emphasized is the interest accrual process for those applying for IDR plans.

  • Interest Accrual Rules: If you apply for an IDR plan, your servicer has up to 60 days to process your application. During that time, interest will accrue. However, if your application isn't processed within the first 60 days, you will be moved from processing forbearance into general forbearance. This means no payments are required, and interest will not accrue if processing takes longer than expected.

  • What Should Borrowers Do?: If you're applying for a mortgage, it’s recommended to switch from a SAVE plan to a non-SAVE income-driven plan to ensure accurate statements and payments. LoanSense advises avoiding voluntary forbearance or deferment unless absolutely necessary, as these options do not count toward loan forgiveness and can result in unnecessary interest accumulation.

2. End of the On-Ramp to Repayment

The on-ramp to repayment officially ended on September 30, 2023. However, it's important to note that student loan servicers won't report missed payments to credit bureaus until January 2025.

  • Should You Make Payments Now?: Yes. Just because missed payments won’t show up on your credit report immediately doesn’t mean you should skip them. Failure to make payments can lead to severe consequences, including a pathway to default, which could harm your financial standing and credit score when payments eventually get reported.

  • Most Impacted Borrowers:
  • Borrowers required to make payments but who have yet to do so since the repayment requirement resumed.Borrowers who were in default before the pandemic and haven’t made any efforts to rehabilitate or consolidate their loans.Baby boomers, who are reported to carry the highest student loan balances due to borrowing for both their own education and their children’s education.

3. Understanding the SAVE Plan Lawsuit

One of the most significant recent legal developments involves a lawsuit challenging the SAVE plan. The lawsuit has been escalated to a district court in Missouri, with claims that the Missouri Higher Education Loan Authority (MOHELA) could lose revenue if loans under the SAVE plan are forgiven.

  • Is the Lawsuit Likely to Succeed?: Many experts argue that the lawsuit’s claims are speculative. MOHELA profits when borrowers make on-time payments, and the SAVE plan encourages borrowers to stay on track. Additionally, MOHELA itself has requested fewer cases to manage, implying that its involvement in the lawsuit might not be as direct as claimed.

This case could eventually make its way to the Supreme Court, as previous lawsuits challenging student loan forgiveness have also done.

4. Additional Considerations for Borrowers

For those at risk of default, it’s crucial to file for loan rehabilitation or consolidation. Wage garnishment and tax withholdings could occur if these steps are not taken. If you need guidance, LoanSense can help you navigate this process. You can reach us via email at hello@myloansense.com.

For families planning for college, it’s important to think strategically about student loans. A helpful rule of thumb is to avoid borrowing more than what your first-year salary will be after graduation. This ensures that loan repayment is manageable and that the debt burden doesn’t overshadow your financial future.

With the on-ramp to repayment ending and legal challenges swirling around the SAVE plan, it’s critical to stay informed and proactive in managing your student loans. If you’re uncertain about your repayment options or need assistance, LoanSense is here to help. Visit myloansense.com for more information or chat with one of our experts.

By staying on top of these developments, you can make informed decisions to safeguard your financial future. Please share this blog with others who may benefit from these updates, and don’t hesitate to reach out with any questions!

At LoanSense, we specialize in student loan solutions, helping you save for a down payment or manage finances. Visit us at myloansense.com to get a free student loan plan.

If you need personalized assistance or have questions about your specific situation, our experts at LoanSense are here to help. Visit our website at www.myloansense.com to learn more about our services and get in touch. You may also check out our YouTube Channel for more informative discussions and topics related to student loan debt.

Any inquiries can be made to loanhelp@myloansense.com

Need help with what options are best for you? Get in touch with us.

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