Court Order Partly Blocking SAVE Plan Leaves Student Loan Borrowers In Limbo—Again

Borrowers with federal student loans are getting an unpleasant sense of déjà vu: For the second time in a little over one year, courts have blocked financial relief the government had told them was coming. 

In separate orders Monday, federal judges in Missouri and Kansas temporarily blocked the U.S. Department of Education from forgiving loans, and from further reducing payments for borrowers enrolled in the Saving for a Valuable Education (SAVE) federal student loan repayment plans. The orders were a victory for a group of Republican-led states that sued the government to stop the SAVE plan. The repayment plan was created by President Joe Biden’s administration last year after the Supreme Court struck down his original student loan forgiveness program.

The orders spelled financial chaos for many of the nearly 8 million borrowers enrolled in SAVE plans. The government has told borrowers since last year that the plan’s new rules would cut their income-based payments down to 5% of their discretionary income from the current level of 10% for undergraduate loans. In some cases, the SAVE plan would wipe out their student loans completely.

Borrowers Feeling Whiplash

On social media, some borrowers said they had made major decisions, such as buying houses or planning to pay off credit cards, based on the new rules, which were set to go into effect in July but are now in question.

“That's what really sucks about this - there is no certainty! It's hard to plan anything or make decisions when everything keeps changing,” one user posted on Reddit. 

“I’m just exhausted with all of this,” another wrote. “My SAVE application just got approved today, and while my monthly payment isn’t terrible, I was really looking forward to it being slashed in half next month. They don’t care about us folks who are struggling to make ends meet.”

The Kansas order, by Judge Daniel Crabtree, blocks the parts of the SAVE plan that were set to go into effect July 1, including the reduction in payments to 5% from 10% of income. The Missouri order, by Judge John A. Ross, stops the department from forgiving any more loans through the SAVE plan, though it doesn't reverse the more than 153,000 loans that already had been forgiven as of February. Both orders are temporary injunctions that will run out when the case is fully resolved one way or the other.

“We strongly disagree with the Kansas and Missouri District Court rulings, which block components of the SAVE Plan that help student loan borrowers have affordable monthly payments and stay out of default,” department secretary Miguel Cardona said in a statement. “The Department of Justice will continue to vigorously defend the SAVE Plan.” 

The Battle Over Loan Forgiveness

The rulings were the latest development in the political clash between conservatives and progressives over whether to forgive federal student loan debt. Last June, the Supreme Court’s conservative majority struck down a broad student loan forgiveness plan that would have eliminated up to $20,000 of student loan debt for most of the nation’s 43 million borrowers. 

The SAVE plan has been a flashpoint in that battle because it is far more generous to borrowers than the older income-driven repayment (IDR) plans it replaces. Like previous IDR plans, borrowers who make payments for 20 or 25 years have any remaining balances forgiven. But the payments are far lower than before, to the point where more than half of borrowers enrolled in SAVE can make progress toward forgiveness without paying anything at all. 

Conservatives have argued that the White House doesn't have the authority to cancel hundreds of billions of dollars of federal student loan debt without the approval of Congress, an argument endorsed by the Supreme Court last June. Forgiveness opponents have also argued that wiping away student debt benefits wealthy college graduates at the expense of people who never went to college.

Progressives, and the Biden administration, say the student loan system traps borrowers in debt, is unfair and confusing for borrowers, and needs reform. 

More Court Battles Lie Ahead

The fate of the SAVE plan will likely be decided in further court battles, and could, like the broad loan forgiveness plan, end up in the Supreme Court. The main legal issue is whether the Education Act, the 1965 law that created the modern student loan system, allows the Secretary of Education to make sweeping changes to the terms of income-driven repayment plans. 

Crabtree said the cost of the SAVE plan—$475 billion over 10 years, according to an estimate by the Penn-Wharton School of Business—was so great that it shouldn’t be allowed without approval from Congress. 

While the orders blocked certain parts of the SAVE plan from going into effect, other parts, which had been in place since last October, remained. That included reduced payments compared with previous versions of income-driven repayment plans because of changes to how “discretionary income” is calculated, and the fact that the department doesn’t charge additional interest for borrowers whose income-based payments aren’t enough to cover the interest accumulating on their loans.