Student Loans Under the Embattled SAVE Plan Are in Forbearance. What Does That Mean?

Elizabeth Guevara is a journalist working to explain the world of business and economics and how it impacts your finances. She joined Investopedia in 2024 as a breaking news writer covering personal finance

Published July 29, 2024 06:34 PM EDT

UMass Amherst held their commencement at McGuirk Alumni Stadium. Students march into the stadium.

KEY TAKEAWAYS

Millions of student loan borrowers are caught in a holding pattern as the courts determine whether or not an income-driven repayment plan can be implemented.

The Department of Education released more information in the past week about what will happen to the loans of more than 8 million borrowers enrolled in the Saving on a Valuable Education (SAVE) plan. The plan was designed to be more generous for borrowers by making payments lower and forgiveness easier to achieve. It's also at the center of two court cases challenging its legality.

Two coalitions of Republican-controlled states argue that President Joe Biden's administration does not have the authority to put such a plan in place. The court cases have resulted in a back-and-forth that has left borrowers in limbo

The Department of Education detailed what forbearance will look like for borrowers. Here’s what you need to know.

What Even Is Forbearance?

Forbearance is a temporary postponement of loan payments. For SAVE borrowers, that means they will not have to make payments and will not accrue interest on their loans until further notice.

After a Federal appeals court blocked the plan from being implemented, the Department of Education moved all SAVE plan borrowers into forbearance. Even if borrowers received a bill for August, they will not have to pay it, according to the Department of Education.

Borrowers can still make payments to their loan servicer during forbearance. Those payments will be applied to future bills after forbearance ends.

However, any payments made during the forbearance will not count toward loan forgiveness, including Public Service Loan Forgiveness. This has been a point of frustration for some borrowers, who were close to having their debt forgiven.

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  1. U.S. Department of Education. "Department of Education Updates on Saving on a Valuable Education (SAVE PLAN)."
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An income-share agreement (ISA) is a contract that allows a student to receive upfront money for college in exchange for a fixed percentage of their future income.

Cost of attendance (COA) at a college includes tuition, room and board, fees, and other expenses. The total is used to calculate a student's financial aid needs.

A Stafford loan is a type of fixed-rate loan available to college and university undergraduate, graduate, and professional students attending college at least half-time.

Public Service Loan Forgiveness (PSLF) allows eligible federal student loan borrowers to have some of their debt forgiven when certain conditions are met.

An award letter is the FAFSA documentation sent from a college or university to the student that details how much financial support the student is eligible for.

Student debt refers to loans used to pay for college tuition and repaid after the student graduates or leaves school.

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