Court Blocks Biden’s Student Loan Forgiveness Plan

Federal student loan borrowers are currently facing uncertainty as a court battle unfolds over President Biden’s latest student loan forgiveness plan. A recent court ruling has paused all forgiveness efforts, with the Supreme Court expected to make a decision soon regarding the future of the program.

The Biden administration’s Saving on a Valuable Education (SAVE) plan, which is an income-driven repayment initiative, is at the center of this controversy. The plan is designed to lower borrowers’ monthly payments, accelerate debt forgiveness, and enable more borrowers to qualify for $0 payments. However, Republicans have challenged the plan, arguing that it imposes an unlawful financial burden on states.

Two separate lawsuits have been filed by GOP-led states against the SAVE plan. The first, Alaska v. Department of Education, was initiated by attorneys general from multiple states in Kansas. A district court initially blocked part of the SAVE plan, but the 10th Circuit Court of Appeals overturned that decision, allowing the plan to proceed while the legal battle continues. In response, GOP-led states have taken the case to the Supreme Court, seeking to pause parts of the program during the litigation.

The second lawsuit, Missouri v. Department of Education, resulted in a district court pausing only one part of the SAVE plan. However, the 8th Circuit Court of Appeals temporarily blocked the entire program and issued a more lasting order, ruling that the government cannot provide any relief through the SAVE plan until the 8th Circuit or the Supreme Court makes a final decision.

Texas, one of the states involved in the Kansas lawsuit, has also taken action. Over the weekend, the state filed a letter with the Supreme Court, noting that the 8th Circuit’s ruling has made their previous request irrelevant. They are now asking the Supreme Court to either order the Missouri district court to discard the SAVE plan entirely or accept the case for oral arguments, which would mean the high court would decide on the plan’s legality.

On Monday, the Department of Education announced that borrowers in the SAVE program would have their loans placed in forbearance while the court dispute continues. This means that payments will be paused, and borrowers will not have to make payments during this period.

According to the Education Department, borrowers whose loans are paused during the court dispute will not accrue interest while in forbearance. However, the time spent in forbearance will not count toward loan forgiveness under income-driven repayment plans or for public servants. Borrowers in the SAVE plan who have already received a bill for August are still being placed in forbearance, meaning payment is not required. Those who have not yet received a bill for August will not receive one. The Education Department has promised regular updates to borrowers as the court case progresses.

The SAVE plan, first announced by the Biden administration in August 2023, replaced the previous Revised Pay-As-You-Earn (REPAYE) plan. Under the SAVE plan, borrowers’ debt could be forgiven after 10 years of payments for those who owe $12,000 or less, with one year added per $1,000 owed, up to a maximum of 20 or 25 years. The plan also reduced undergraduate loan payments to 5% of a borrower’s monthly income, down from 10%, reduced accrued interest on payments, and raised the salary threshold for when borrowers must start making payments. Those earning less than 225% of the poverty line now qualify for $0 monthly payments, compared to 150% under previous rules. The administration justified these changes under federal regulations that mandate income-driven repayment plans to vary payments based on the borrower’s annual income.

Borrowers will remain in forbearance while the legal battles continue. It is unclear when the Supreme Court will rule on the request to either take up the student loan case for oral argument or reject the program outright. If the court decides to hear the case, it will be reviewed during the next term, which begins in October, with an opinion expected before the term ends in June 2025.

The 8th Circuit’s ruling blocking the SAVE plan has been met with criticism. Education Secretary Miguel Cardona stated on Monday that the decision “rejects a practice of providing loan forgiveness that goes back 30 years.” He accused Republican-led lawsuits of being politically motivated and obstructing lower payments for millions of borrowers.

As of July, more than 8 million federal student loan borrowers were enrolled in the SAVE plan, according to the Biden administration. The ongoing legal uncertainty is likely to impact other borrowers with income-driven repayment plans. Additionally, the surge in borrowers seeking clarification about their loan plans has often led to widespread breakdowns among student loan servicers, affecting all borrowers.

The SAVE program is separate from another student loan forgiveness plan announced by the Biden administration in April, which targets borrowers who owe more than they originally borrowed, those who have been paying undergraduate loans for over 20 years, and those eligible for existing forgiveness programs but have not applied. The administration planned to start notifying borrowers about this plan in July, but it remains unclear how the ongoing legal dispute over the SAVE plan might affect it.