Student loan repayments left in limbo

Student loan borrowers across the country have been left in limbo after a federal court issued an injunction on President Joe Biden’s Saving on a Valuable Education (SAVE) Plan.

The SAVE Plan, which was introduced last summer, is an income-driven repayment plan, calculating a borrower’s monthly repayment based on their income and family size.

The proposed plan replaced the Revised Pay As You Earn (REPAYE) Plan, which was implemented back in 2016.

While the argument continues on the federal level, local experts are encouraging Hoosier borrowers not to let their guard down, and instead pursue the right repayment plan.

Mark Zuckerberg, an Indianapolis-based attorney for the Bankruptcy Law Office of Mark Zuckerberg, said in his 38 years of practice, he’s never seen anything like what’s happening right now with student loans at the federal level.

One of Zuckerberg’s goals is to help borrowers get their loans forgiven through filing for bankruptcy. To have their loans forgiven, borrowers must pass the Brunner test, a notoriously difficult feat because borrowers must prove three things.

“You have to prove that you’re living at or near poverty level, that you’ve made a good faith effort to try and pay the student loans back, and, based upon your unfortunate circumstances, you’re never going to be able to pay them back,” Zuckerberg said.

Zuckerberg said that for years, both sides of the political coin have tried to resolve the student loan problem.

A different way to approach the issue was introduced in 2022, when the Department of Justice and Department of Education announced a more straightforward way for attorneys to pursue the bankruptcy discharge process for clients.

This process utilizes DOE data and a borrower-completed attestation form that judges then use to assess a borrower’s request for discharge based on the undue hardship inquiry.

The federal fight on student loans

In June, the states of Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma filed a lawsuit in the United States District Court for the Eastern District of Missouri to prevent President Biden and the Department of Education from implementing the SAVE Plan any further.

The lawsuit, State of Missouri et al., v. Joseph R. Biden, Jr., et al., 4:24-cv-520, challenges President Biden, the Department of Education and DOE Secretary of Education Miguel Cardona for their implementation of the “Final Rule,” which includes the SAVE Plan.

The rule was published in the Federal Register in July 2023 after a series of public hearings, negotiations between key stakeholders and a final public hearing period, according to the lawsuit.

Some of the regulations under the rule include:

• Expanding access to affordable monthly Direct Loan payments through changes to the REPAYE Plan (now known as the SAVE Plan).

• Increasing the amount of income exempted from borrowers’ payment calculations.

• A shorter maximum repayment period for borrowers with low original loan balances.

• Ensuring borrowers won’t be charged a remaining accrued interest each month after their payment is applied under the REPAYE Plan.

• Crediting periods of deferment or forbearance toward time needed to receive forgiveness.

Those enrolled in the REPAYE Plan were automatically enrolled in the SAVE Plan. Some provisions of the SAVE Plan rolled out previously, with the rest enacted in July.

In its ruling, the district court granted in part and denied in part a preliminary injunction requested by the states, stating the early loan forgiveness previously rolled out exceeded the Department of Education’s statutory authority.

However, the court also said the states have yet to prove all other aspects of the plan, apart from student loan forgiveness, harm them.

On July 18, the 8th Circuit Court of Appeals granted the states’ appeal for an administrative stay on the SAVE Plan.

On Aug. 14, Cardona announced the U.S. Department of Education filed an emergency application with the U.S. Supreme Court to vacate the circuit court’s injunction.

“This injunction, if allowed to stand, would harm borrowers who have dutifully repaid their loans for up to 25 years by denying forgiveness that has been available under law for three decades,” Cardona said in a statement on the DOE’s website.

Right now, borrowers under the SAVE Plan are in forbearance and won’t have to make payments while there, according to the DOE. No interest is accrued in forbearance.

However, borrowers can also choose to switch plans during the ongoing legal battle. Those not under the SAVE Plan can also apply for the SAVE Plan, but its terms are still up in the air.

Approaching the student loan forgiveness problem

It’s unclear how long the SAVE Plan will be in limbo as the student loan forgiveness debate plays out in court.

Zuckerberg said he’s filed about 10 requests for discharge since the new process was enacted and has been successful for clients.

However, he said filing for bankruptcy for student loans can be challenging if a borrower is only experiencing temporary hardship.

“An example is, there’s a case where a lawyer was trying to pass the bar, and he’s taken the test like five or six times and can’t pass but meanwhile, now he owes the student loans, but he can’t pay the student loans because he can’t get a job, because he can’t pass the test,” Zuckerberg said. “And the judge says, ‘Well, I understand your unfortunate circumstances now, but none of us know whether you might pass the next test, and then you would be able to pay it back.’”

William Wozniak, Vice President of Communications and Student Services for INvestEd, wants to make sure borrowers with federal loans don’t take this time “off” from finding solutions to pay off debt.

“The key to focus on is getting those loans in the best place possible,” he said.

INvestEd is a nonprofit based in the Hoosier state that supports students interested in pursuing higher education.

One service the nonprofit provides is helping borrowers find which repayment option works best for them.

Wozniak said that while the political discussion around student loan repayment can be distracting, it’s ultimately not what borrowers need to focus on.•