Education Dept Fixes Student Loan Court Filing Error

Student loan borrowers had reason to worry last week after a court filing from the Department of Education sparked confusion. The filing suggested that married borrowers who file taxes separately could soon have their spouse’s income included when calculating payments under income-driven repayment plans.

That change would have run against longstanding rules and current law. But the Department reversed itself this week, submitting a revised declaration in federal court clarifying that the calculation of monthly payments will continue to exclude spousal income for married borrowers who file separately. The only actual change relates to family size, which could work in borrowers’ favor.

The issue stems from litigation over the SAVE Plan, President Biden’s income-driven repayment program, which has been blocked by a federal court.

As the Department of Education updates its systems and guidance to comply with court orders, some borrowers and advocates feared that unrelated changes might be pushed through in the process. For now, those fears have eased.

What’s Actually Changing For Borrowers

The Department’s original statement raised eyebrows because it seemed to defy the statute governing income-based repayment. That law is clear: if a borrower files taxes separately, the calculation should only reflect that person’s income.

The updated court filing corrected that misstatement. Instead, the department clarified that what’s changing is the family size calculation used in IDR formulas.

Under prior regulations connected to the SAVE Plan, a borrower’s spouse was excluded from the family size count if the couple filed separately. But the injunction blocking SAVE appears to revert the family size rule to its previous form, which does include the spouse.

For example, under current rules, a husband and wife with two kids, but filing separately, would have a family size of 3 (spouse is excluded). But, under the revised rules, the spouse can be included – making the family size 4. 

This shift may help many borrowers. Since family size is part of the formula that determines discretionary income, a larger family size usually reduces the borrower’s required monthly payment. You can run the discretionary income calculator here and see the differences.

IDR Application Processing Is Resuming

The Department of Education confirmed that it is moving forward with processing IDR applications under allowed repayment plans, including ICR, IBR, and PAYE. These plans remain available and are not affected by the SAVE injunction.

According to the Department, loan servicers are expected to resume processing applications by May 10. Borrowers who have pending applications or are required to recertify income and family size will begin seeing progress soon. However, there is no ETA on when the backlog of applications will be processed.

What To Expect Moving Forward

The American Federation of Teachers filed a lawsuit last month over the pause in IDR application processing, arguing that borrowers should not be penalized due to the SAVE litigation. That suit prompted the Department’s recent updates and is still ongoing.

These court filings are essentially telling the court “we’re working on it and so you don’t have to”. 

A hearing is scheduled for this week, where the court will review the Department’s assurances and decide whether oversight is still needed. The AFT may continue pushing for court monitoring to ensure the IDR system remains accessible and compliant with federal law.

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