Education Department Blocks All Student Loan Forgiveness For 3 Months

The Education Department Memo To Student Loan Servicers: What You Need To Know

1. The Education Department’s memo to student loan servicers: what it means
The U.S. Department of Education has issued a memo directing student loan servicers to halt the processing and acceptance of all income-driven repayment (IDR) and loan consolidation applications for at least three months. This directive applies to major servicers like MOHELA, Aidvantage, and Nelnet, who manage student loans on behalf of the Department, handling tasks such as collecting payments, processing applications, and providing customer support. The memo explicitly stops the processing of both new and pending applications, including paper forms, leaving borrowers without access to income-driven repayment options. While borrowers can still submit paper loan consolidation applications, they will not have the option to choose an IDR plan during this period. The hold could be extended or lifted early, but for now, it adds another layer of confusion and financial strain for millions of borrowers.

2. The immediate impact on student loan borrowers
This sudden change has significant financial implications for borrowers. The Education Department’s guidance eliminates access to IDR plans, which are specifically designed to make monthly payments affordable by tying them to a borrower’s income. Without these plans, borrowers are left with only the standard 10-year repayment plan, or graduated and extended repayment plans, which are far more expensive. For example, a borrower earning $50,000 a year with $50,000 in debt would pay $12,345 under the SAVE plan and have the remaining balance forgiven. Without IDR options, they would face paying $68,220 under the standard plan—a staggering increase of $55,875. Similarly, borrowers with higher debt loads, such as $100,000, could see their total payments balloon by over $120,000 compared to what they would have paid under an IDR plan.

3. Why the Education Department took this action
The memo is a direct response to a federal court ruling that blocked the new SAVE (Saving on a Valuable Education) plan, a program introduced by the Biden administration in 2023 to lower monthly payments and provide a faster path to loan forgiveness. The lawsuit, filed by Missouri Attorney General Andrew Bailey and six other Republican-led states, argued that President Biden overstepped his authority in creating the SAVE plan, claiming it was not authorized under the 1993 statute he relied on. In August, the 8th Circuit Court of Appeals imposed an injunction halting the SAVE plan and barring forgiveness for borrowers whose loans are governed by the statute. The court has since sent the case back to the district court for further review, leaving millions of borrowers in limbo.

4. What this means for Public Service Loan Forgiveness (PSLF)
The situation is even more complex for borrowers relying on the Public Service Loan Forgiveness (PSLF) program. While the PSLF program remains open for new enrollment for those working for eligible employers—such as government agencies or qualifying non-profits—borrowers ultimately need to be enrolled in an IDR plan to qualify for forgiveness after 120 payments. However, due to the Education Department’s memo, borrowers cannot currently enroll in or recertify an IDR plan, effectively blocking the path to PSLF forgiveness. For example, borrowers enrolled in the SAVE plan have had their qualifying payments put on hold, delaying their progress toward the required 120 payments. This has left countless borrowers who rely on these programs uncertain about their financial futures.

5. Advocates push back against the Education Department’s actions
Student loan advocates are criticizing the Education Department’s decision to block access to all IDR plans, arguing that the court’s ruling did not require such drastic measures. Persis Yu, deputy executive director of the Student Borrower Protection Center, called the decision “cruel” and emphasized that it inflicts unnecessary pain on working families. Advocates point out that while the court blocked the SAVE plan, it explicitly allowed borrowers to switch to other IDR plans, such as Income-Based Repayment (IBR), to continue working toward forgiveness. They are urging the Department to reopen at least one IDR plan during this period to provide borrowers with some form of financial relief.

6. The broader implications and what’s next
The Education Department’s memo has created widespread confusion and anxiety among borrowers, many of whom are already struggling with the weight of student loan debt. By barring access to affordable repayment options, the Department has left borrowers with no choice but to rely on more expensive repayment plans, increasing their financial burden. As the lawsuit over the SAVE plan works its way through the courts, millions of borrowers remain in a state of limbo, unsure of when—or if—they will regain access to the programs they rely on to manage their debt. Advocates and lawmakers are calling on the administration to take immediate action to address this crisis, but for now, the situation remains uncertain.