Student loan borrowers are in limbo while legal challenges wend through courts

School is back in session, which means, among other things, a whole lot of new student loans for college and grad students — and many parents too. The total amount of outstanding student loan debt in this country is over $1.7 trillion.

For the many people who’ve already graduated and are repaying their loans, there’s a lot of uncertainty right now. The 8th Circuit Court of Appeals temporarily blocked a new program by the Biden administration that would reduce monthly payments for many borrowers to just 5% of their income. The program is on hold while challenges from Republican-led states wend through the courts.

Around this time last year, the Biden administration rolled out the Saving on a Valuable Education, or SAVE, plan. It was designed to be “the most affordable repayment plan ever” for people with student loans.

When Aaron Reichlin-Melnick heard about it, he figured, why not sign up if it would lower his monthly payment?

“I have been paying my student loans for years,” said Reichlin-Melnick, a lawyer at an immigration rights nonprofit in Washington, D.C.

Anyone who works at a nonprofit is eligible to have their loans forgiven after making payments for 10 years through a program that’s been around for a long time called Public Service Loan Forgiveness.

“I am four months away from reaching my 10 years, after which my student loans are going to be forgiven. However, right now, I am unable to pay my student loans,” he said.

He’s unable to pay because his loans were put into forbearance while the lawsuits over the SAVE plan are ongoing. 

Mike Pierce at the nonprofit Student Borrower Protection Center said the administration put 8 million borrowers into forbearance. 

“They’ve basically paused their payments, and they’re not charging them interest either,” he said. “For most people who are just trying to make their ends meet every month, this is a pretty good deal.”

But for people like Reichlin-Melnick, who work in public service, it’s not such a good deal. 

“Because right now those months are not counting towards Public Service Loan Forgiveness. That means those borrowers will be in debt longer,” Pierce said.

It also means they’re stuck working in a nonprofit job until they’re able to finish making payments. If they get laid off, they could lose the chance for loan forgiveness. They also can’t switch into another kind of income-driven repayment plan either. 

Mark Donnell tried calling to ask. His wife is a longtime public school teacher in Springfield, Missouri, and she’s also tantalizingly close to getting her loans forgiven.

“So we’re, like, four payments shy and everything is now frozen. So we’re basically just stuck in limbo,” he said.

And they have no idea how long that will be the case.

“It’s very much a mess for borrowers,” said Adam Minsky, a lawyer who specializes in student loans. He said it could be months, because the legal challenges are likely headed for the Supreme Court. “And even a fast-tracked Supreme Court decision may not come out until next summer,” he added.

That means millions of borrowers could be looking at nearly a year in limbo.