MOHELA: Why Are My Student Loans in Forbearance?

Quick Facts

Your MOHELAMOHELAThe Missouri Higher Education Loan Authority, a federal student loan servicer that currently handles accounts for borrowers in Public Service Loan Forgiveness and other federal loan portfolios. student loans are suddenly in forbearance due to a federal court order affecting the Saving on a Valuable Education Plan. This isn’t a typical forbearance you might request for financial hardship. It’s an automatic administrative action taken by MOHELA, at the direction of the U.S. Department of EducationU.S. Department of Education (ED)The federal agency that oversees federal student aid programs, issues regulations for federal student loans, and is the ultimate lender on Direct Loans., in response to legal challenges.

Here’s what happened:

1. You were either enrolled in the SAVE PlanSAVE Plan (SAVE)The Saving on a Valuable Education Plan, a federal income-driven repayment plan introduced in 2023 to replace REPAYE. Its implementation has been subject to ongoing litigation, and enrolled borrowers have faced court-ordered forbearance periods. or about to have your payments lowered under it.
2. A federal court recently blocked the implementation of the SAVE Plan.
3. To comply with the court order and prevent incorrect billing, the Education Department directed MOHELA to place affected borrowers into forbearance.

As a result, all MOHELA borrowers enrolled in SAVE, or those about to have their payments lowered under SAVE, were placed into forbearance. This action is supposed to prevent you from getting billing statements while the legal issues are resolved. But that hasn’t been true for everyone.

This automatic forbearance differs from other types in several key ways:

1. It’s open-ended. Unlike typical forbearances that last for a specific period, there’s no set end date for this one.
2. It’s not by request. MOHELA initiated this forbearance without borrower action.
3. No forgiveness progress. Unlike the COVID-19 forbearance, this period doesn’t count towards Public Service Loan ForgivenessPublic Service Loan Forgiveness (PSLF)A federal program that forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer. or income-driven repaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. forgiveness.

The fact that this forbearance pauses your payments and interest but also pauses your progress toward loan forgiveness is frustrating. But this isn’t a result of MOHELA’s incompetence. Instead, it results from broader changes and legal challenges in federal student loan programs.

Related: Biden Student Loan Forgiveness

How Does This Forbearance Affect My Loans?

This unexpected forbearance affects your MOHELA loans in three main ways.

First, there’s no loan interest accrual during this forbearance. This means your balance won’t grow no matter how long payments are paused.

Second, this administrative forbearance shouldn’t negatively affect your credit score. It’s reported to credit bureaus as an administrative forbearance, similar to how COVID-19 forbearance was handled.

Finally, while there’s no immediate financial impact, this forbearance can affect your long-term repayment strategy. For example:

1. Extended repayment timeline: If you were aggressively paying down your loans, this pause might extend your overall repayment period.
2. Retirement planning: For those nearing PSLF completion and planning to retire soon, this forbearance could potentially delay your plans. I’ve met with a few clients who need just a few more months of qualifying payments before they get forgiveness under the PSLF Program. This situation is forcing some of them to consider delaying retirement or even having to return to work to make those final qualifying payments.
3. PSLF buyback complications: There’s a PSLF buyback option that might help in some cases, but it has limitations. You’re supposed to be working in public service when you apply, which could create issues for those who’ve already retired.
4. Emotional impact: Many borrowers feel frustrated by the lack of progress toward forgiveness. As humans, we want to move forward and feel we’re making headway on our goals. This pause can be emotionally taxing, even if the short-term financial impact is minimal.

Can I Opt-Out to Keep Making Payments?

Yes, you can opt-out of the forbearance to keep making monthly payments. But what happens after you make that decision is complicated. Plus, opting out won’t lead to you immediately earning PSLF or IDR ForgivenessIDR ForgivenessThe forgiveness of any remaining federal student loan balance after a borrower has completed 20 or 25 years of qualifying payments under an income-driven repayment plan, depending on the specific plan. credit.

Here’s what I mean.

When you opt out, you have to tell MOHELA what repayment plan to put you in. Since your goal in opting out is to keep earning credit towards a student loan forgiveness program, you must be in an income-driven repayment plan. At this time, the only plans that you can choose from are IBR and ICR, and possibly PAYE (Pay As You EarnPay As You Earn (PAYE)A federal income-driven repayment plan that caps monthly payments at 10% of discretionary income and forgives remaining debt after 20 years. It is only available to borrowers who took out their first federal loans on or after October 1, 2007.) if you’re a newer borrower who meets specific eligibility requirements.

All of those plans will likely have higher payment amounts than what you were paying under SAVE. So before you switch, you need to make sure you can afford the new payment amount.

Then, when it’s time to apply, you have to submit a paper IDR application. The Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. website has shut down electronic processing as it works to rejigger the site to comply with the court order.

And then, even when you do turn in a paper application, that doesn’t mean it’s going to be processed right away. As of August 21, 2024, student loan servicers aren’t processing paper IDR applications. Instead, they’re putting them into a holding bin while they wait for word from the Education Department about what to do.

This means it’s impossible for you to continue progressing towards forgiveness right now. Even if you leave forbearance, you won’t make progress toward PSLF or income-driven repayment forgiveness unless you’re in an income-driven plan.

The same is true if you make voluntary payments during forbearance. These payments may help reduce your loan balance and be applied to future bills, but they won’t count toward any forgiveness programs.

Will This Impact My Loan Forgiveness?

Yes, this forbearance could affect your loan forgiveness. Here’s what you need to know:

The SAVE Plan is on hold. A federal court (the U.S. Court of Appeals for the Eighth Circuit) has blocked it. This means the Department of Education can’t implement most of the SAVE program right now.

Moreover, this court order might also limit relief under other student loan repayment plans and forgiveness programs.

The Biden administration has sought to clarify the court’s order, but the court declined to do so. This lack of clarity has left millions of student loan borrowers in this weird space where they are no longer earning credit toward any forgiveness program. It has also led many to question whether they should’ve ever switched to SAVE, considering things were mostly fine under their original repayment plan.

To top it off, the upcoming election could also impact the outcome. A Trump administration could permanently end all forms of income-based student loan payment plans. There’s also no guarantee a Harris administration would have the desire or the cachet to push through legislation that could make the SAVE Plan federal law instead of a mere regulation.

How Long Will The Forbearance Last?

The duration of this forbearance is tied to ongoing legal challenges. Unlike typical forbearances, there’s no set end date. The forbearance will likely end when one of these occurs:

• Courts allow the SAVE Plan to proceed
• A new repayment plan is implemented
• The Department of Education resumes billing under existing plans

While you’re in this forbearance, use the Loan Simulator on StudentAid.gov to estimate your future payments under different repayment plans. This includes IBRIncome-Based Repayment (IBR)A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments., ICRIncome-Contingent Repayment (ICR)The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation., PAYE, and standard plans like Extended or Graduated repayment.

What Happens When the Forbearance Ends?

When the forbearance ends, you’ll be expected to start making payments again. Depending on court rulings and policy changes, your repayment options may differ from what they were before. MOHELA will contact you with instructions when it’s time to resume payments.

As for getting forgiveness credit during the forbearance, there’s currently no provision for retroactive forgiveness credit during this forbearance period. This means time spent in this forbearance doesn’t count towards PSLF or income-driven repayment forgiveness. We understand this is frustrating, especially if you’re close to qualifying for forgiveness.