Key insights
- Changes to the PSLF Buyback program, following the shelving of the SAVE plan, will increase costs for public service borrowers seeking loan forgiveness. This could slightly reduce disposable income for affected borrowers, potentially dampening consumer spending. The impact on US equities is expected to be mildly negative due to the marginal decrease in consumer discretionary spending.
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Federal student loan borrowers who were on the Saving on a Valuable Education plan will now pay more for Public Service Loan Forgiveness.
The PSLF program forgives borrowers' remaining debt after 120 qualifying monthly payments made while working in public service, such as teaching, working for the federal government, being a police officer, or working for a nonprofit.
However, progress toward forgiveness has stalled for PSLF borrowers enrolled in the SAVE plan. These borrowers spent almost two years in forbearance—time that typically doesn't count toward PSLF. A Biden-era program called PSLF Buyback lets borrowers make up qualifying months spent in forbearance or deferment.
Previously, the PSLF Buyback amount could be based on SAVE borrowers' monthly payments under their repayment plan. But now that the SAVE plan was shelved by a federal court in mid March, the Department of Education has changed this rule.
The PSLF program has been essential for many public-service borrowers, as they typically earn less than private-sector workers. Loan forgiveness has become essential for many, especially as job growth has slowed and inflation is rising.
SAVE borrowers who requested a buyback before July 1, 2024, must now recalculate their missed payments under another income-driven program: the Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Income Contingent Repayment (ICR) plans.
After 120 months of qualifying public service, borrowers can "buy back" any time spent in forbearance or deferment by paying a lump sum equal to what they would have owed during the pause.
Borrowers spent 21 months in SAVE forbearance. For an average single borrower with no children, buyback for that time would cost $7,861 using SAVE plan payment amounts, according to Investopedia's calculations. The average married borrower with two kids would pay $1,364.
Under IBR or PAYE, which produce similar monthly payments, a single borrower's buyback amount would be $2,000 more than under SAVE. A married borrower with kids would pay almost $4,200 more.
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