The Education Department reopened enrollment on Friday in two student loan repayment plans it had sought to replace, allowing borrowers to transfer out of the alternative program it had proposed, which has been frozen by litigation since July.
The decision revived the Pay As You Earn plan, also known as PAYE, and the Income-Contingent Repayment plan, also known as I.C.R. They were established in 2012 and 1996 and mostly closed to new enrollment last year to encourage borrowers to sign up for the administration’s Saving on a Valuable Education program, also known as SAVE.
Phasing out the two plans in favor of an alternative with better terms for many borrowers had been a priority for the department, especially after successful legal challenges thwarted President Biden’s more ambitious student debt forgiveness plans last year.
Emboldened by those rulings, a coalition of attorneys general from Republican states also brought lawsuits challenging the legality of SAVE this year, even after millions had enrolled in the plan, which offered many people vastly lower monthly payments.
Many people who signed up have been prevented from making payments since this summer while litigation surrounding SAVE plays out.
That, in turn, blocked many public service workers from logging payments that would count toward having their full balance forgiven after 10 years under the Public Service Loan Forgiveness program, including many who were agonizingly close before the litigation started.
In the announcement, the department said the move was a stopgap designed to “give borrowers more breathing room on their student loans” while the department continued “vigorously defending the SAVE Plan in court.”
But many legal experts expect the litigation against SAVE to succeed after the Supreme Court declined to intervene in the case this year, and President-elect Donald J. Trump seems to favor having the department abandon the program along with most of Mr. Biden’s student debt policies.
Both PAYE and I.C.R. are income-driven repayment plans, and the department advised that most borrowers would see lower payments under PAYE.
Under PAYE, the first $22,590 of an individual’s income is not counted toward a monthly payment, and borrowers pay 10 percent of their income above that. Under I.C.R., most individuals owe nothing on up to $15,060 in income, and 20 percent of their income beyond that amount. Both plans have higher income caps based on family size.
According to the department, loan servicers may continue to keep enrollees in forbearance for 60 days while processing applications, after which interest will begin to accrue. But most crucially for public service workers, payments made under the old plans will qualify toward forgiveness.
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