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Popular debt forgiveness programs could become more expensive for some student loan borrowers following new policies launched by the Trump administration.
Borrowers who used so-called buyback options to settle their debts under Public Service Loan Forgiveness are likely to be subject to higher charges under the changes.
Created by Congress and signed into law by President George W. Bush in 2007, PSLF allows certain nonprofit organizations and government employees to cancel their federal student loans after 120 payments or 10 years.
Meanwhile, the PSLF Buyback program was created by the Biden administration to allow borrowers who have completed 120 months of eligible employment to submit an application to the U.S. Department of Education for retroactive payments for the months missed due to forbearance or deferral.
Here we explain why “buyback” offers are more expensive and what borrowers can do about it.
The Trump administration will not adopt the SAVE plan method.
After submitting your repurchase request, you will receive an offer letter from the Department of Education. This should include the number of months you missed a payment during your civil service career and the opportunity to pay that bill in exchange for student loan forgiveness.
Why Borrowers May Have to Pay More Now for That Relief: The Department says it will not use the Savings for a Valuable Education (SAVE) plan to calculate a borrower’s offer if the borrower’s deferment or forbearance was after July 1, 2024.
The Biden administration-era SAVE plan, which was formally blocked by a federal appeals court in March, had monthly payments that were much lower than other repayment plans. In the SAVE plan, monthly payments were based on just 5% of the borrower’s discretionary income. For comparison, income-based repayment plans pay 10%, but for certain borrowers with older loans, that percentage rises to 15%.
“Scheduling high payments may prevent people from taking advantage of buybacks, or they may have to dip into savings or borrow from family or friends to make the payments,” said Carolina Rodriguez, director of New York City’s Education Debt Consumer Assistance Program.
Recently, one of EDCAP’s customers owed about $30,000 based on his income and IBR plan, Rodriguez said. That made pursuing that option impossible, she added.
Since the summer of 2024, many borrowers have been trying to obtain PSLF loans. At that time, while legal issues unfolded, borrowers enrolled in SAVE received administrative moratoriums. Typically, student loan borrowers only move forward toward PSLF if they are actively making payments in an eligible plan.
Exit of SAVE enrollees has been slow, with about 7.2 million remaining in the program as of December, according to recently released agency data.
Borrowers are already having trouble getting repurchase offers. More than 88,000 borrowers are waiting for a decision on their applications from the Department of Education, a number that has only skyrocketed in recent months.
CNBC spoke to some borrowers who requested relief more than a year ago but have yet to receive a response.
What student loan borrowers can do
Higher education expert Mark Kantrowitz said buyback offers are likely to be more expensive than they are now, but it doesn’t hurt to apply and get the option. In fact, he said, borrowers who have not yet requested relief should do so as soon as possible.
“Slow processing of the backlog means there will be delays,” Kantrowitz said.
Once you receive your offer, compare the monthly payment amount calculated by the Department of Education to your future monthly payment amount under the most affordable repayment plan available. (It would likely be an income-based repayment plan or a repayment assistance plan starting in July, Kantrowitz said.)
If your income was lower during the forbearance or deferral than it is now, your monthly payments under a buyback offer could be lower, he said. (Even so, you may not be able to pay a large amount all at once.)
If your future payments calculated under your qualifying plan are lower than your buyback offer, you must start making payments until you reach the 120 required to obtain PSLF.
