SAVE Student Loan Plan Blocked: 8 Key Takeaways for Borrowers Seeking Relief

Last week, the 8th Circuit Court of Appeals issued a temporary order blocking the Saving on a Valuable Education (SAVE) plan. SAVE is President Biden's newest income-driven repayment (IDR) program designed to be more affordable than previous IDR options like Revised Pay As You Earn (REPAYE).

Here's what the order on SAVE means and what borrowers should know as the legal battle continues.

Legal challenges lead to conflicting court rulings

The order is the latest development in two separate legal challenges to SAVE brought by over a dozen Republican-led states:

• In June, federal courts in Kansas and Missouri issued preliminary injunctions blocking portions of SAV, but not the whole program. 
• Both the Biden administration and the GOP-led states appealed. 
• The 10th Circuit Court of Appeals, which considered the Kansas court's appeal, issued a “stay” or hold on the lower court’s injunction, allowing SAVE to proceed. 
• But last week, the 8th Circuit — which heard an appeal from Missouri — did the opposite and issued a one-line order blocking the entirety of the SAVE program and its associated regulations.

“Appellants’ emergency motion for an administrative stay prohibiting the appellees from implementing or acting pursuant to the Final Rule until this Court rules on the appellants’ motion for an injunction pending appeal is granted,” reads the order.

Related: SAVE Plan Blocked: The Court’s Ruling Explained

Advocates warn of chaos and confusion

Advocates slammed the 8th Circuit’s ruling, warning it would thrust the entire student loan system into chaos. “Blocking the SAVE Plan and student loan debt forgiveness is a grave error,” said Kristin McGuire, Executive Director of Young Invincibles, in a statement last week. 

“This ruling will continue to exacerbate the confusion and uncertainty felt by borrowers as they try to navigate repayment and decode competing narratives about their student loans. The role of the government is supposed to be to help its citizens, not cause intentional, undue harm. Millions of borrowers deserve relief from the burden of student debt.”

8 key takeaways after SAVE is blocked by federal appeals court

Here are the key takeaways on what the 8th Circuit's order means for student loan borrowers as the legal battle continues.

Student loan forgiveness is blocked under court order

Like all IDR plans, SAVE allows student loan forgiveness for borrowers after years of repayment. For SAVE, the typical repayment term is 20 years for undergraduate borrowers and 25 years for borrowers who took out any graduate school loans. 

The SAVE program, however, can shorten that loan forgiveness timeline to as little as 10 years for borrowers who took out small initial balances.

But, the 8th Circuit’s order blocks all student loan forgiveness under the SAVE plan, regardless of the borrower’s specific repayment term. 

Reduced student loan payments blocked under SAVE

Unlike other IDR plans, as of July, borrowers may have different repayment plan formulas under SAVE depending on whether or not they have graduate school loans. 

• Borrowers with only undergraduate school debt would have SAVE payments based on 5% of their discretionary income, which is the amount of their Adjusted Gross Income (AGI) above 225% of the federal poverty limit for their family size. 
• Borrowers with only graduate school debt would pay 10% of their discretionary income.
• Borrowers with a mix of graduate and undergraduate debt would have a weighted average formula — somewhere between 5% and 10% of discretionary income — depending on their ratio of graduate school and undergraduate school loans.

However, following last week’s order from the 8th Circuit, all payments under SAVE are blocked. A prior court order from Kansas had only halted reduced payments for undergraduate loans scheduled to go into effect this month. In contrast, the 8th Circuit’s order blocked the entire SAVE plan and any payments calculated under the program’s rules.

Other SAVE plan benefits that are now blocked

Because the 8th Circuit has blocked all the regulations governing the SAVE program, many other benefits are impacted beyond lower payments and student loan forgiveness. These include:

• Interest subsidy waiving interest accrual above monthly payment.
• Weighted average treatment of existing IDR credit on consolidated loans.
• Automated annual income recertification for borrowers who opt into a data-sharing tool between the IRS and the Department of Education.
• Counting certain deferment/forbearance periods toward forgiveness.

All of these SAVE Plan features (and more) are now blocked following the 8th Circuit’s order.

Related: 5 Myths About the New SAVE Plan, Demystified

Borrowers can’t enroll in SAVE plan

With SAVE blocked, borrowers can no longer enroll in the plan. Last week, the Education Department took down the online IDR and Direct consolidation applications, preventing borrowers from applying to any IDR plan (not just SAVE) for the time being. This is because the department must update its internal systems to comply with the 8th Circuit’s order and prevent borrowers from being able to select the SAVE plan.

The department has not made clear what will happen to borrowers who had pending SAVE applications that were not processed at the time of the 8th Circuit’s order. However, it’s doubtful these borrowers will be permitted to enroll in SAVE while the order remains in effect.

Current SAVE borrowers get a forbearance

On Friday, the Education Department indicated that the more than eight million borrowers currently enrolled in SAVE will be placed in a forbearance by August. No payments will be due during the forbearance period, and no interest will accrue.

“Borrowers enrolled in the SAVE Plan who have received a bill for August are being put in an interest-free forbearance — payments are not required during forbearance,” said new department guidance. “Borrowers enrolled in the SAVE Plan who have not yet received a bill for August will also be put in forbearance and therefore will not receive a bill.”

SAVE forbearance will not count toward student loan forgiveness

While many borrowers will be relieved to have no payments and no interest for the time being, the SAVE plan forbearance will not count toward IDR student loan forgiveness. It will also not count toward Public Service Loan Forgiveness (PSLF), which is a huge blow to borrowers pursuing this popular program.

“The time in forbearance will not count toward Public Service Loan Forgiveness or Income-Driven Repayment (IDR) loan forgiveness,” said the Education Department, with no explanation.

If the forbearance continues, borrowers pursuing loan forgiveness through IDR or PSLF may want to explore switching to a different IDR plan. However, that may not be possible for now while the IDR application remains inaccessible. It’s prudent for some borrowers to await further guidance from the department before taking such steps, given that payments under other IDR plans may be significantly higher in some cases.

The 8th Circuit’s order is temporary (for now)

Last week’s order from the 8th Circuit is not a final ruling on the merits of the Republican-led legal challenges. It’s a temporary order issued while the court considers the next step, a preliminary injunction. A preliminary injunction, if allowed, would extend the block on the SAVE plan while the legal challenges continue. 

On the other hand, the court could deny the request for a preliminary injunction — allowing SAVE to go back into effect — or modify the order to block only certain elements of the SAVE plan.

A decision on a preliminary injunction could come in the next few weeks. 

The Supreme Court may ultimately rule on the SAVE plan

While the 8th Circuit issued the order blocking the SAVE plan, the 10th Circuit — which heard an appeal from a parallel legal challenge — took a different approach. That court stayed the lower court’s partial preliminary injunction, allowing the Biden administration to continue implementing SAVE while the litigation continues.

Whenever two circuit courts issue very different orders or rulings on the same issue, and that issue has significant importance nationally, the Supreme Court is likely to at least consider taking up the matter. The Supreme Court is already somewhat involved — a handful of Republican-led states have appealed the 10th Circuit’s order to the nation’s highest court. 

What's next for borrowers seeking relief?

With the SAVE plan blocked and the IDR application currently unavailable, borrowers may be unable to switch to a different income-driven repayment plan for the time being. However, it's important to explore your options and make informed decisions about your student loans in light of the court's ruling.

Schedule a student loan consultation to understand the potential impact on your repayment strategy and get a personalized plan to manage your student debt moving forward.