Courts Blocking SAVE Plan Cause Chaos for Student Loan Borrowers, Advocates Warn

Two federal courts issued sweeping orders blocking key elements of President Biden’s SAVE plan on June 24, 2024. SAVE, which stands for Saving on a Valuable Education, is a new income-driven repayment (IDR) plan that the administration has been touting as the most favorable plan ever created. 

The two rulings halt different elements of the SAVE plan but don’t strike down the program completely — at least, not yet. The judges involved have reached different legal conclusions about the SAVE plan, and the Education Department has promised to appeal the decisions. Together, these actions have injected enormous uncertainty for borrowers, who already had a complex array of federal student loan forgiveness and repayment plans to navigate amidst an ever-changing landscape. 

Advocates have warned that the downstream impacts of these decisions and the subsequent appeals could have catastrophic consequences for millions. Here's what we know, what we don’t know, and what to look for as these lawsuits move forward.

How SAVE worked: Lower payments and eventual student loan forgiveness 

SAVE is an income-driven repayment (IDR) plan, similar to other federal student loan repayment plans like Income-Based Repayment (IBR), Income Contingent Repayment (ICR), Pay As You Earn (PAYE), and SAVE’s predecessor plan, Revised Pay As You Earn (REPAYE). 

All IDR plans use a formula based on the borrower’s family size and “discretionary income” (the amount of their adjusted gross income, or AGI, above an initial income exemption limit). Any remaining balance is forgiven after 20 or 25 years, depending on the plan.

Related: New Poll Shows Split Opinions on Biden’s Student Loan Forgiveness Efforts

Generous terms and phased implementation

SAVE, introduced by the Biden administration last year in 2023 to replace REPAYE, has more generous terms than other IDR plans. Rolled out in phases, the Education Department first increased the income exemption limit, allowing borrowers to earn more while maintaining a low or $0 monthly payment. 

Additionally, an interest subsidy was introduced to wipe out excess interest above a borrower’s minimum monthly payment, addressing the impacts of exploding loan balances due to interest accrual. 

This past winter, the Education Department unveiled the next major feature of SAVE: so-called early loan forgiveness. Like other IDR plans, SAVE offers student loan forgiveness after 20 or 25 years of repayment. But it provides faster loan forgiveness for those who borrowed smaller amounts. If a borrower took out $12,000 or less in eligible federal student loans, they could get a complete discharge in as little as 10 years under this provision.

Millions of borrowers have already enrolled in SAVE to benefit from the income exemption improvements and interest subsidy. More than 400,000 have already received student loan forgiveness under the program's early forgiveness provision.

Related: Could Student Loan Forgiveness Become Taxable Again? There’s a Looming Cliff

Benefits borrowers may never see

Additional benefits were set to go into effect in July 2024, including a revamped repayment formula that would have dramatically reduced payments for borrowers with mostly or entirely undergraduate student loans. Administrative improvements, such as automated income recertification for borrowers opting into a data-sharing tool with the IRS, were also planned.

What the court injunctions blocked under SAVE

In June 2024, two federal courts issued preliminary injunctions blocking critical components of the SAVE plan in response to two separate legal challenges brought by two different coalitions of Republican-led states. A preliminary injunction is a temporary order to halt a program or law while a legal challenge moves forward, but it’s only granted if a court determines that the challengers have a likelihood of ultimately prevailing in their lawsuit.

Arguments against the SAVE plan

The states argued that SAVE is essentially illegal and that the Biden administration exceeded the authority delegated by Congress by establishing such generous repayment and loan forgiveness terms.

Kansas court allows partial preliminary injunction

The court in Kansas allowed a partial preliminary injunction, blocking all elements of SAVE set to go into effect this July. This includes the revamped repayment formula that would have reduced monthly payments for many borrowers and the administrative benefits associated with automated income recertification. But the judge left the remainder of SAVE that’s already in effect intact.

Missouri court blocks loan forgiveness

Meanwhile, the court in Missouri blocked student loan forgiveness under SAVE while allowing the rest of the program to remain intact. This would include the SAVE elements set to effect in July 2024. But the Missouri judge seemed to question whether loan forgiveness under SAVE is allowable at all. Notably, the same legal authority was used to establish earlier IDR plans, including ICR, PAYE, and REPAYE — all of which have a loan forgiveness component.

Nationwide confusion and implementation challenges

The competing rulings are already causing confusion and making it difficult for the Education Department to implement the plan. Because these are nationwide injunctions, they have a nationwide impact. 

What the court injunctions didn’t block

While problematic, the current injunctions only cover portions of the SAVE plan. Borrowers currently enrolled in SAVE are not being kicked off, and their monthly payments should not change — at least for now. According to the Education Department, borrowers can also continue to sign up for the program.

The injunctions also don’t apply to other federal student loan forgiveness and repayment programs. Loan forgiveness continues under Public Service Loan Forgiveness, the Total and Permanent Disability Discharge program, and Borrower Defense to Repayment. 

Related: PSLF on Pause: How to Survive Loan Forgiveness Delays and Errors

Many unknowns create chaos for student loan borrowers 

But there is an enormous amount of uncertainty for borrowers now, and the future of SAVE is far from clear. These are preliminary injunctions, meaning that they’re just an initial step. Further appeals could result in changes to these injunctions. 

But there is a very real possibility that SAVE, or elements of it, ultimately gets struck down. If that happens, it’s unclear what this would mean for borrowers looking to remain in IDR or on track for student loan forgiveness. Potential impacts include:

• Increased payments for some borrowers if they are forced to switch to a different, more expensive IDR plan, such as IBR. 
• The need for others to change their repayment plan to continue progressing toward loan forgiveness. 
• Uncertainty about the future of ICR and PAYE if the underlying legal authority that SAVE was based on gets called into question — because those plans were created using that same authority many years ago (IBR, a different IDR plan, was passed through separate legislation in Congress).

Advocates sound the alarm

Advocates highlighted how problematic these rulings could ultimately be for borrowers.

“This may just be politics to the leaders of Missouri and Kansas, but for 40 million people trying to manage their student loans, it’s chaos,” said Abby Shafroth, Co-Director of Advocacy at the National Consumer Law Center, in a statement. 

“While the decision only temporarily suspends loan forgiveness in the SAVE plan, Missouri’s arguments threaten to upend 30 years of student loan regulations interpreting the relevant statute as providing for forgiveness for low-income borrowers of any remaining balance after an extended period of repayment. Under Missouri’s interpretation of the law, borrowers who faithfully make their required payments for 25 years but can’t afford to repay their principal and interest in full in that time would instead be plunged into default, where they would face ruined credit and having their wages and Social Security benefits garnished for however many decades more it may take for the government to collect in full. It would be wrong to assume that Congress intended such a cruel result.”

Calls for suspension of payments amid legal battle

Some groups have called on the Biden administration to suspend payments on federal student loans while the legal process continues. 

“From constantly shifting deadlines to continued servicer mismanagement to programs being struck down by unelected judges, borrowers already struggle to navigate a complicated and always-changing federal student loan landscape,” said Spencer Dixon, Senior Policy Advisor with Student Debt Crisis Center. 

“Yesterday, radical states attorneys general succeeded in adding further chaos and confusion to the mix by halting major tenants of the Biden-Harris Administration's SAVE plan. Millions of borrowers made the decision to enroll in the plan based on the full benefits it was to provide. With those benefits now in question, the Administration must pause payments until they are reinstated.”

But it’s uncertain if the administration would have the legal authority to enact a new pause on payments. And regardless, such an action would likely result in a fresh barrage of legal challenges.

Where to go from here?

In light of these recent developments and the ongoing legal challenges, it's more important than ever for borrowers to have a solid student loan plan. Click here to book your consultation and take the first step toward a clear, actionable student loan strategy.