The Education Department quietly made a small but very significant change to a troubled federal student loan forgiveness program last week. And the update could lead to significant new costs for tens of thousands of borrowers who are trying to discharge their student loans.
Nearly 90,000 borrowers currently have pending applications for PSLF Buyback, an offshoot of the Public Service Loan Forgiveness program. PSLF allows borrowers to get their federal Direct student loans discharged after working for 10 years in qualifying nonprofit or government employment. But the program also requires that borrowers make payments on their student loans under specific repayment plans in the course of that employment. Periods of non-payment, including most deferment and forbearance periods, don’t count. But borrowers can apply to have some of those non-qualifying periods counted toward student loan forgiveness through the PSLF Buyback program, which allows borrowers to apply to make a lump sum payment based on what they would have paid if they had been in repayment (instead of in a deferment or forbearance). If approved, that period can ultimately count toward student loan forgiveness under PSLF.
But last week, in conjunction with the wind-down of the SAVE plan, the Trump administration made a significant change to PSLF Buyback that may make those required lump-sum payments significantly more costly for SAVE plan borrowers pursuing student loan forgiveness. Here’s the latest.
PSLF Buyback Can Count Certain Deferment And Forbearance Periods Toward Student Loan Forgiveness
The “regular” PSLF program requires 120 qualifying monthly payments (the equivalent of 10 years) while working in eligible public service employment for a borrower to qualify for student loan forgiveness. For most borrowers, this means making payments under one of the available income-driven repayment plans such as ICR, IBR, PAYE, or SAVE (previously called REPAYE). But PSLF Buyback, which was first launched under the Biden-Harris administration in 2023, gives borrowers the opportunity to retroactively count certain periods of deferment and forbearance toward PSLF by making an approved lump sum payment.
“You can now buy back certain months in your payment history to make them qualifying payments for PSLF,” says Education Department guidance on its PSLF Buyback website. “Specifically, you can buy back months that don’t count as qualifying payments because you were in an ineligible deferment or forbearance status.”
The PSLF Buyback program has specific eligibility rules. Borrowers can’t even apply for student loan forgiveness under the program until they have 120 months of qualifying public service employment, and buying back the months of deferment or forbearance must then allow the borrower to qualify to have their student loans discharged, if approved. The program has other limitations, as well.
“You can’t buy back months during which your loan was in any of the following statuses: in-school or in-origination, in-grace, default, bankruptcy, Total and permanent disability monitoring,” says the department. “You can’t buy back any months on loans that are: not a Direct loan, in a paid-in-full status, in a forgiven status, in a discharged status, or included in a Direct Consolidation Loan.”
Student Loan Forgiveness Calculation For PSLF Buyback Normally Based On Income-Driven Repayment Plan
Normally, the Education Department would determine the PSLF Buyback amount (the lump sum payment that the borrower must pay to qualify for student loan forgiveness under the program) based on what their monthly payments would have been under the income-driven repayment plan that they were enrolled in at the time that they entered the deferment or forbearance period they are trying to buy back.
“If you were on an IDR plan immediately before or after the months you’re buying back: If the deferment or forbearance was less than a year in length, we’ll use the lower of the two monthly IDR payments for the months before or after the time in deferment or forbearance” when calculating a borrower’s PSLF Buyback amount, says the Education Department. If the deferment or forbearance was longer than a year, the department may need updated income information for the borrower.
This feature of PSLF Buyback has been critical for student loan borrowers in the SAVE plan, all of whom have been in a forced forbearance for nearly two years due to legal challenges involving the program. For SAVE plan borrowers who are also pursuing PSLF, the buyback program offers an opportunity to ultimately get the SAVE plan forbearance period counted toward student loan forgiveness at a reasonable cost.
Borrowers Seeking Student Loan Forgiveness Through PSLF Buyback Now Cannot Use SAVE Plan Formula
But last week, the Education Department officially terminated the SAVE plan after the Trump administration and state challengers reached a settlement agreement to end the program, and the district court overseeing the SAVE plan legal challenge formally entered a judgment implementing that agreement. Following that entry, the department issued new guidance that all SAVE plan borrowers will be given a limited window of time to switch to another income-driven plan.
“Today, the U.S. Department of Education (the Department) began issuing guidance to all borrowers enrolled in the unlawful ‘Saving on a Valuable Education’ (SAVE) Plan, directing them to exit the plan and enter a legal federal student loan repayment plan,” said the department in a statement last week.
But buried in that guidance is a major change to PSLF Buyback. The Education Department says it will no longer use the SAVE plan repayment formula to calculate a borrower’s PSLF Buyback amount, even though all borrowers in the SAVE plan were forced into an involuntary forbearance due to the legal challenges.
“Part of determining the amount of PSLF buyback requires an analysis of the repayment plan that a borrower was on before or after a period of deferment or forbearance,” said the department in its updated guidance. “If the start or end date for the period of deferment or forbearance that is being bought back is on or after July 1, 2024, then the amount required to buy back that period of time cannot be based on the SAVE Plan formula.”
Instead, the department suggested that the buyback amount would be based on one the other income-driven repayment plans, such as ICR, IBR, or PAYE. For student loan borrowers who were not enrolled in one of these plans (for example, if they had applied for the SAVE plan but were placed into the forced forbearance before their applications were processed), the PSLF Buyback amount will be based on the repayment formulas associated with one of the other income-driven repayment plans, as well.
“If the borrower was not on the IBR, PAYE, or ICR Plan on either side of the period of time being bought back, then we will request income and family size information from the borrower to determine the appropriate buyback amount,” says the department.
Revised PSLF Buyback Calculation May Increase The Cost Of Student Loan Forgiveness
Because the SAVE plan was significantly more affordable than the other income-driven repayment plans, the Education Department’s decision to not use the SAVE plan formula to calculate borrowers’ PSLF Buyback amounts may increase the cost of student loan forgiveness for the thousands of borrowers with pending buyback requests.
For example, a single borrower with an Adjusted Gross Income of $75,000 and only undergraduate student loans would have had a SAVE plan payment of as low as $215 per month. If they were approved for PSLF Buyback for the SAVE plan forbearance period of approximately 20 months, they would have to make a lump sum “buyback” payment of $4,300 to receive student loan forgiveness. But following the Education Department’s updated guidance, their PSLF Buyback amount may instead be based on a plan like IBR. Under IBR, the same borrower’s monthly payment would have been around $640 per month. To qualify for PSLF Buyback for the same 20-month SAVE plan forbearance period, they would have to pay $12,800, nearly three times what the buyback amount would have been if the department utilized the SAVE plan formula.
More than 88,000 borrowers seeking student loan forgiveness through PSLF Buyback are stuck in a large and growing backlog, according to Education Department data released earlier this month. That backlog has been steadily growing every month, and has nearly doubled over the course of a year. Now, in addition to processing times that can exceed 12 months, SAVE plan borrowers who are hoping to get their student loans discharged through PSLF Buyback may now have to budget for a significantly higher buyback payment if they want the involuntary SAVE plan forbearance period to ultimately count toward student loan forgiveness.
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